THE  INVESTOR'S 
CATECHISM 

By  MARC  M.  REYNOLDS 


SECOND  EDITION,  REVISED  AND   ENLARGED 


PUBLISHED  BY 

MOODY'S    MAGAZINE 

NEW  YORK 

1909 


«•«(•»„ 


Copyright,  1908 

By  MARC  M.  REYNOLDS 

(All  rights  reserved) 

Copyright,  1909 
By  A.  W.  FERRIN 
(All  rights  reserved) 


INDEX. 


PAGE 

A  Good  Transfer   112 

Abbreviations    117 

Above    Par 12 

Account,  Discretionary  .  51 

Account,    Long    75 

Account   of   Sales 12 

Accounts    and    Risks....  12 

Actual    Rates    12 

Afloat    12 

Allotment     12 

Apex    13 

Arbitrage    13 

Argentine    15 

Assented  Stocks  or  Bonds  15 

Assessment    15 

Assigned  in  Blank   15 

Assignment    15 

Atlantic   Ports    16 

Averaging   Out    16 

Backwardation    17 

Balance    17 

Balance  of  Trade 17 

Bale    17 

Ballooning    17 

Baltic   Ports    17 

Baltimore   Plan    18 

Banking    18 

Bank   Clearings    19 

Bank  of  the  United 

States     20 

Bank  of  England    20 

Bank  of  England  Note . .  20 

Bank  of  England  Rate..  21 

Bank  Statement 22 

Barrel    24 

Bear    24 

Bills   of  Exchange 24 

Black   Friday    25 

Blind    Pool    25 

Block    25 


PACK 

Board  Room 26 

Bonanza    26 

Bond    26 

Bond,  Adjustment 26 

Bond,  Coupon 27 

Bond,  Guaranteed  28 

Bond,  Income 67 

Bond,  Irredeemable   ....  70 

Bond,  Joint   71 

Bond,  Optional 28 

Bond,  Registered 28 

Bond,  Registered  Coupon  29 

Bond,  Released  Endorsed  95 

Bonds,  Gold 29 

3onds,  Investment 28 

Bonds,   Municipal    29 

Bonds,    Registered    94 

Book  Value  29 

Books  Opened  30 

Break    32 

Broker     30 

Broker,  Arbitrage   30 

Broker,  Bond   31 

Broker,  Commission  ....  31 

Broker,  Curb 31 

Broker,  Investment 31 

Broker,  Money 31 

Broker,   Note    85 

Broker,  Outside   31 

Broker,  Two-Dollar    32 

Bucket    Shop    32 

Bucketing 32 

Bulge     33 

Bull    33 

Bushel    33 

Buyers'   Option    34 

Buying  on  a  Scale,   Up 

or    Down    34 

Buying  on  Margin   34 

Buying  Outright  35 


438629 


PAGE 

Buying  or  Selling  at  the 

Opening  35 

By-Bidder    35 

Cables    36 

Call    36 

Call   Bonds    36 

Call  Loan  36 

Cambist     37 

Capital  Assets 37 

Capital  Liabilities   37 

Car   Lots    37 

Carry   Stock    38 

Carrying  Charges    37 

Cash    38 

Cash   Grain    38 

Cats  and  Dogs 38 

Cental     38 

Centime    

Certificates,    Gold    ...... 

Certificates,  Clearing 

House    40 

Certificates,   Receiver's    .  94 

Certificates,  Silver 101 

Change 39 

Changing  Eighths  and 

Quarters    39 

Charter    39 

Check,  Certified   39 

Check  Collection  Charge  40 

C.  I.  F 40 

Cipher  Code   40 

Clearances    40 

Clique    41 

Coalers    41 

Collaterals    t 41 

Commercial  Ci  ?dit   41 

Commercial   Paper    41 

Commission  Houses  ....  42 

Commissions    42 

Commitment    42 

Common  Carrier   42 

Comparison    42 

Conducting     Transporta- 
tion       43 

Consign    43 

Corxsol    43 


PAGE 

Contango  44 

Continental  Markets  ...  44 

Contract  Grade  44 

Conversion  44 

Coppers 44 

Corner  44 

Corporation  45 

Corporation,  Close  41 

Corporations,  Limited  . .  73 

Cotton  Future  46 

Cotton,  Spot  46 

Coupon  46 

Covering  of  Shorts  ....  47 

Craze  47 

Credit  Mobiler  47 

Cross  Trade  47 

Curb  Market  48 

Curbstone  or  Curb 

Brokers  48 

Current  Assets  48 

Current  Liabilities  49 

Cutting  a  Melon  49 

d 49 

Days  of  Grace 49 

Dead  One 49 

Debenture  50 

Default  50 

Deferred  Shares 50 

Delivery  Day  51 

Delivery,  Good  50 

Demurrage  51 

Differential  51 

Discount  52 

Dividend  52 

Dividend,  Ex-  54 

Dividend,  Passing  a....  88 

Dividends,  Accrued 53 

Dividends,  Accumulated.  53 

Dividends,  Cumulative  . .  54 

Dividends,  Irish  70 

Domiciliated  55 

Drawback 55 

Drive  55 

Drop  in  the  Market....  55 
Duck;  Dead  Duck;  Lame 

Duck    55 


PAGE 

Early  Information    .....  55 

E.  and  O.  E  ...........  56 

Engagements   ..........  56 

Equity   .................  56 

Estimated   Car   Lots    ...  56 

Exchange    .............  56 

Exchange,  Foreign   .....  60 

Exhaust   Price    .........  57 

Exporting  Countries  ....  57 

Ex-Rights   .............  57 

Ex-Store    ..............  57 

Fancy  Stocks   ..........  58 

Fiscal  Year   ............  58 

Five  Ports   .............  58 

Fixed  Charges    .........  58 

Flat   ......  .............  59 

Floating  Debt  ..........  59 

Flurry    .................  59 

Flyer    ..................  59 

F.  O.  B  .......  .  ........  60 

Forcing  Quotations    ....  60 

Fractional  Orders  or  Lots  61 

Franchise   ..............  61 

Free  Port  ..............  61 

Frozen  Out  ............  62 

Funded  Debt    ..........  62 

Funded  or  Funding  .....  62 

Funding   System    .......  62 

Futures   ................  63 

General  Expenses  ......  63 

Give  Up   ...............  63 

Gould  Stocks    ..........  64 

Government  Reports   ...  64 

Granger   Railroads    .....  64 

Hard   Spot,   A  ..........  65 

Hectolitre    .............  65 


Hedging   ...............     65 

Holding   Company    .....     65 
Holding  the   Market  ____     66 


Honeycombed  With  Stop 

Orders    ..............  66 

Hypothecation    .........  66 

"I     Hear;"     "I     Under- 

stand;" "They  Say"...  66 

Importing  Countries  ____  67 

Income  Account    .......  67 


PAGI 

Income  Basis   67 

Index 3,  4,  5,  6,  7 

Industrials    67 

Insider    68 

In  Sight   68 

Inspection    68 

Interest    68 

Interest,  Accrued    69 

Interest,    Ex-    68 

Interest,  Long   75 

Interest,  Short   100 

Introduction    9 

Investment     n 

Investment  Buying 69 

Invisible  Supply 69 

Invoice    70 

Irregular     70 

[ettison   70 

Jobbers   70 

Kaffirs   71 

Kangaroos   ...  71 

Kilo    71 

Kite-Flying    71 

Kiting    71 

£    •• 72 

Lamb  72 

Legal  Interest  and  Stat- 
ute   of    Limitations    . .  129 

Legal  Tender   72 

Lien   72 

Limit   72 

Liquidating   Market    ....  73 

Lloyds    74 

Lloyds  Register 74 

Load    75 

Local   Transportations    .  75 

London   Quotations    ....  75 

Long  Market    75 

Maintenance     of     Equip- 
ment      76 

Maintenance  of  Way  and 

Structures   76 

Manipulation 76 

Margin    77 

Mark    77 

Market  is  Off 78 


f>AGt 

Matched  Order    78 

Measures    of    Capacity..  125 

Measures  of  Length    . . .  125 

Measures  of  Solidity 125 

Measures  of  Surface....  125 

Merger    78 

Metric  System   124 

Mileage  78 

Milking   the   Street    79 

Mixed   Loan    79 

Monetary    79 

Monetary   Standard    ....  79 

Money     124 

Money  Market   80 

Money  Rates    81 

Monometalism    81 

Mortgagee    81 

Movable  Exchange 81 

National   Debt    81 

Net  82 

Net    Earnings    and    Net 

Profits  Differ    82 

New        York        Clearing 

House    82 

New     York     Stock     Ex- 
change       83 

Nominal    84 

Non-Assented  Stocks  and 

Bonds    84 

Non-Interest   Bearing    . .  85 

Odd  Lots   85 

On  a  Scale 86 

Option    86 

Overbought   87 

Oversold  Market  87 

Pacifies    87 

Paper  Profits   87 

Par   87 

Par  of  Exchange 88 

Pegged  88 

Pit  Traders   88 

Plunger    89 

Point    89 

Pool   89 

Pool,  Discretionary    52 

Posted   Rates   89 


PAGE 

Power  of  Attorney    ....  89 

Premium 90 

Primary   Shipments    ....  90 

Principal    90 

Private  Wire  Houses    . .  90 

Privilege    91 

Professionals   91 

Promoters    91 

Promoters'  Shares 91 

Pro-Rate    91 

Proxy    91 

Pulling  the  Strings    ....  92 

Put   92 

Pyramiding    92 

Quarter    93 

Quintal     93 

Readjustment     93 

Realizing   Sales    93 

Rebate    94 

Receiving    Houses    94 

Recovery    94 

Rehypothecation    94 

Rentes     95 

Reorganization     95 

Repudiation     95 

Revenue  Account    96 

Rigging  the  Market  96 

Ringing   a    Cotton    Con- 
tract      96 

River   Plate   Wheat    96 

Room  Trader   96 

Sack    97 

Saddling  the  Market   ...  97 

Salting  a   Mine    97 

Salting    Down    Stock    ..  97 

Sample    Crowd    97 

Scalpers    97 

Scalping    98 

Scrip    98 

Seignorage     98 

Seller  the  Year    98 

Seller's    Option    98 

Selling  Out  a  Man    99 

Share   99 

Shares,  Founders'   99 

Shares,  Promoters'   9I 


PAGE 

Shifting  of  Loans   99 

Shilling 99 

Short     Interests     Some- 
times   Created    100 

Short    Market     100 

Short   Selling    100 

Sick   Market    100 

Sinking  Fund    101 

Slump    101 

Snipe     101 

Soft    Spot    101 

Southerns    101 

Specialists    101 

Speculation    n 

Spilling    Stock     104 

Split    102 

Spread     102 

Spread  and  Back  Spread  102 

Squeezed     103 

Stock   103 

Stock    Certificate    105 

Stock,    Common    103 

Stock,  Common  or  Gen- 
eral      84 

Stock  Exchange  Clearing 

House    105 

Stock,  Guaranteed 103 

Stock,  Gunning  a 64 

Stock,  Half   104 

Stock,  Non-Assesable   . .  85 

Stock,  Non-Cumulative  .  85 

Stock,  Pounding  a 89 

Stock   Power    109 

Stock,    Preferred    104 

Stock,    Trustee    104 

Stock,  Watered   105 

Stocks,     Borrowing    and 

Lending  107 

Stocks,  Foreign  Port....  61 

Stocks,  Guaranteed  ....  64 

Stocks,  Listed  73 

Stocks,  Listed  and  Un- 

^  listed    74 

Stocks,  Unlisted    104 


PAGE 

Stop  Order   109 

Straddle    109 

Swimming    Market     ....  109 

Syndicate   108 

Tailers 109 

Tape  Reader  109 

Ticker    no 

Tierce    no 

Time  Loan no 

Tired  Market    no 

Title  I 

To  Buy  In    in 

Tonnage   ill 

Traffic   Density    in 

Transcontinental    ill 

Transfer    ill 

Traps  112 

Trunk  Lines 112 

Trust  Company   112 

Twisting  the  Shorts   112 

Two  Per  Cent.  Up 113 

Underlying  Mortgage    ..  113 

Undertone    113 

Under   the   Rule    113 

Underwriter     114 

United    States    Treasury 

Notes     114 

Unloading    114 

Upset    Price    114 

Value    Bill     114 

Value  of  Foreign  Money  126 

Voting  Trust    114 

Wall  Street  Deal 49 

Warehouse    Receipts    ...  115 

Washing 115 

Watered    Stock    115 

Weights    125 

Whipsawed    115 

Wide    Opening     115 

Wind     116 

Wiped  Out    116 

Worked   for    Export    ...  116 

World's    Shipments    116 


I NTROD  UCTI  0  N 


FEW  people  outside  of  professional  financiers  understand 
the  investment  of  money.    Investment  is  a  business  which 
demands  constant  application  and  an  analytical  study  of 
all  classes  of  securities,  together  with  the  local,  national 
and  international  conditions  which  affect  the  world's  markets. 

In  the  preparation  of  this  volume,  the  first  of  the  elemen- 
tary series  to  be  devoted  to  the  subject  of  investments,  the 
author  has  attempted  to  simplify  the  abstruse  words  and 
phrases  which  are  used  by  brokers  to  classify  various  forms 
of  investments  and  speculation.  No  attempt  has  been  made 
to  analyze  investments,  but  rather  an  endeavor  to  impart  to 
the  novitiate  the  rudiments  necessary  to  acquire,  before  an 
intelligent  understanding  of  speculation  and  investment  can 
be  gained. 

Ninety  per  cent,  of  the  people  who  buy  stocks,  bonds  and 
other  securities  depend  upon  the  brokers  through  whom  they 
deal  for  their  information.  An  honest  broker  will  give  his 
client  a  conscientious  opinion  on  a  security,  but  he  may  err 
in  judgment  and  frequently  is  blamed  where  the  blame 
should  be  laid  at  the  door  of  the  investor  for  not  having 
carefully  studied  the  investment  for  himself,  and  formed 
his  own  opinion. 

A  Catechetical  style  has  been  followed.  The  questions 
and  answers  have  been  so  arranged  that  any  person  with- 
out even  the  slightest  knowledge  of  the  operations  of  stock 
exchanges,  brokerage  business,  speculation  or  investment, 
after  studying  this  book,  will  have  obtained  fundamental 
knowledge  which  will  enable  him  to  intelligently  pursue  a 
higher  course  of  study  in  investments. 

AUTHOR. 


Cfje  Investor's  Catecfnsm. 


What  is  INVESTMENT  ? 

Investment  in  the  sense  of  buying  and  differing  from 
speculation,  is  buying  and  paying  outright  for  any 
security,  whether  it  be  stocks,  bonds,  notes,  wheat, 
corn,  or  other  forms  of  produce.  An  investment  is 
the  purchase  of  a  dividend  paying  security ;  the  investor 
purchases  stocks,  bonds  or  notes,  because  he  will 
realize  a  good  return  in  dividends  for  the  amount  of 
money  invested,  and  not  merely  because  he  believes 
the  stock  will  advance  in  its  market  value.  It  is  im- 
possible, however,  to  eliminate  speculation  from  in- 
vestment entirely,  as  the  probable  increased  future 
market  value  of  the  security  purchased  is  always  taken 
into  consideration  by  the  wise  investor. 

What  is   SPECULATION? 

Speculation,  in  a  stock  market  sense,  is  gambling. 
A  speculator  buys  stocks  on  margin,  with  no  intention 
of  actually  paying  in  full  and  having  the  securities 
pass  into  his  possession,  or  he  sells  stocks  on  margin 
without  actually  owning  the  stocks.  Sometimes  the 
cheaper  stocks  are  purchased  outright  for  speculative 
purposes  only.  This  is  the  case  in  curb  securities,  such 
as  some  of  the  mining  stocks,  etc.,  which  are  not  divi- 
dend payers.  They  are  purchased  when  cheap  to  sell  as 
soon  as  the  market  has  advanced.  Having  no  value 
except  what  is  created  in  the  market,  the  purchase  of 
such  stocks  is  pure  speculation. 


12          THE    INVESTORS     CATECHISM 

What  is  meant  by  ABOVE  PAR  ? 

When  a  security  is  higher  than  par  or  nominal 
value. 

What  is  an  ACCOUNT  OF  SALES  ? 

A  statement  of  purchases  or  sales,  or  both,  rendered 
to  his  client  by  a  broker. 

What  arc  ACCOUNTS  AND  RISKS  ? 

Brokers  use  forms  on  which  are  the  words,  "Buy 
or  sell  for  my  account  and  risk,"  for  the  use  of  their 
customers  when  giving  orders  for  purchases  or  sales 
of  securities.  This  means  that  when  an  order  as 
given  is  executed  by  the  broker,  it  is  for  the  account 
and  risk  of  the  customer  and  that  the  broker  is  act- 
ing as  the  agent  only  in  the  jnatter;  therefore,  is  in 
no  sense  personally  liable.  The  customer  is  held 
entirely  responsible  for  the  transaction. 

What  are  ACTUAL  RATES  ? 

The  actual  prices  at  which  sterling  exchange  is 
bought  and  sold  at  any  given  time. 

What  is  meant  by  AFLOAT  ? 
Used  in  the  grain  trade  to  designate  the  amount 
of  grain  which  has  been  exported,  but  has  not  arrived 
at  its  destination. 

What  is  an  ALLOTMENT  ? 

It  is  a  term  used  in  connection  with  underwriting 
syndicates  in  the  amounts  assigned  to  members  or 
subscribers.  When  an  underwriting  syndicate  is  being 


THE    INVESTOR'S     CATECHISM 


formed  and  different  concerns  are  subscribing  for  por- 
tions of  the  underwriting,  it  is  the  custom  that  the 
managers  of  the  syndicate  have  it  in  their  power  to 
allot  to  a  subscriber  less  than  the  amount  applied  for, 
provided  the  total  subscription  or  underwriting  ex- 
ceeds the  total  amount  offered  for  subscription.  Many 
instances  have  occurred  where  an  over-subscription 
of  a  stock  or  bond  issue  has  been  so  great  that  the 
subscribers'  final  allotment  is  only  a  small  proportion, 
sometimes  only  10%  of  the  amount  for  which  he  has 
subscribed.  Such  subscriptions  have  frequently,  in 
popular  securities,  induced  underwriters  to  subscribe 
for  greater  amounts  than  they  expected  to  receive  and 
thereby  have  been  able  to  secure  the  allotment  actually 
desired. 

What  is  an  APEX? 

The  real  definition  of  the  word  is  "point,"  or  "top." 
Applied  to  mining,  apexing  means  mining  a  claim 
where  the  ledge  apexes  or  comes  to  a  point,  on  an 
adjoining  claim  or  property.  The  law  gives  to  the 
owner  of  a  mining  claim  the  right  to  mine  an  apex  to 
its  depth  by  following  the  vein,  whether  the  vein 
continues  on  that  particular  claim  or  not. 


What  is  meant  by  ARBITRAGE  ? 

The  meaning  of  this  expression  is  buying  and  sell- 
ing of  securities  in  two  different  markets,  as  in  New 
York  and  London  or  New  York  and  San  Francisco,  the 
purpose  being  to  make  a  profit  from  the  difference  in 
the  quotations  between  the  two  markets.  Some 


i4  THE     INVESTOR'S     CATECHISM 


brokers  do  an  extensive  business  in  arbitrage,  as 
follows : 

Arbitrage  in  stocks  is  based  on  the  temporary  dif- 
ferences in  prices  between  the  different  markets  for 
the  same  stock.  When  a  stock  is  selling  at  a  higher 
price  in  one  market  than  in  another,  it  is  sold  in  the 
market  where  the  higher  price  prevails  and  is  bought 
in  the  market  where  the  lower  price  prevails.  When 
equality  in  price  has  been  restored  he  closes  his  trans- 
actions by  buying  where  he  sold  and  selling  where  he 
bought.  The  difference  in  the  market  prices  represents 
his  profit. 

Calculating  values  for  American  stocks  on  the  Lon- 
don Stock  Exchange  requires  figuring  of  prices  on  the 
London  Exchange  2y$%  higher  than  the  prices  for 
the  same  stocks  on  the  New  York  Stock  Exchange 
when  they  are  actually  the  equivalent  of  the  prices  on 
the  New  York  Stock  Exchange.  In  arbitrage  dealings, 
consequently,  allowance  has  to  be  made  for  this  dif- 
ference in  prices  between  London  and  New  York, 
which  is  merely  figurative,  but  not  actual.  The  figure 
of  2^s%  mentioned  is  reached  as  follows:  In  dealings 
in  American  stocks  on  the  London  Stock  Exchange 
four  shillings  is  counted  as  one  dollar.  Four  shillings 
being  equal  to  97  1-3  cents,  the  price  of  an  American 
stock  must  be  2  2-3%  (quotably,  2^£%)  higher  in  Lon- 
don than  in  New  York,  if  the  London  price  is  at  a 
parity  with  the  New  York  price.  2^4%  of  the  par 
value  is  not  to  be  added  arbitrarily  to  the  New  York 
price,  but  2S/%%  of  the  New  York  price  is  to  be  added 
to  the  New  York  price  to  make  an  equivalent  London 
price. 


THE    INVESTOR'S    CATECHISM          15 

What  does  ARGENTINE  refer  to? 
To  Argentine  Republic,  a  term  used  in  the  grain 
trade. 

What  is  an  ASSIGNMENT  ? 

When  a  holder  of  stock  transfers  his  holdings  to 
another,  he  makes  an  "assignment"  of  his  stock. 
When  a  firm  goes  into  bankruptcy,  and  an  assignee  is 
appointed,  it  is  an  "assignment."  A  transfer  of  title 
or  claim  in  stocks,  bonds,  bills,  deeds  or  interest  in 
real  or  personal  property,  is  an  "assignment." 

What  are  ASSENTED  STOCKS  or  BONDS  ? 

Securities  deposited  under  an  agreement  by  which 
the  owners  assent  to  some  change  in  the  status  of  the 
securities  for  purposes  of  reorganization.  Fore- 
closure or  other  legal  process  is  thus  avoided,  the 
owners  of  the  securities  assenting  to  an  exchange  for 
new  securities. 

What  is  meant  by  ASSIGNED  IN  BLANK  ? 

The  ordinary  stock  certificate  has  on  its  back  a 
printed  form  of  assignment,  whereby  the  owner  of 
the  certificate  can  endorse  the  same  and  thus  make  it 
a  good  delivery  in  selling  it  or  passing  it  to  the  credit 
or  ownership  of  another. 

What  is  an  ASSESSMENT  ? 

An  assessment  on  a  security  is  a  call  from  a  corpora- 
tion on  stockholders  to  pay  into  the  treasury  a  speci- 
fied sum  of  money  on  each  share  of  the  stock  they 
may  hold.  There  are  many  kinds  of  assessments,  the 


16          THE   INVESTOR'S    CATECHISM 

most  common  resulting  from  a  plan  or  reorganization, 
to  secure  funds  to  discharge  debts  and  for  working 
capital.  Most  railroad  and  other  large  corporation 
stocks  are  legally  non-assessable,  but  in  a  reorganiza- 
tion where  conditions  make  it  necessary  to  make 
concessions  and  sacrifices,  assessments  are  frequently 
paid.  Such  assessments  are,  in  a  way,  voluntary  and 
simply  paid  to  preserve  the  property,  and  with  the 
hope  that  the  result  will  ultimately  add  value  enough 
to  the  securities  to  repay  the  stockholder.  The  stock- 
holder has  no  alternative  except  to  pay  the  assessment. 
If  he  fails  to  pay  it,  usually  an  underwriting  syndicate 
stands  ready  to  take  his  stock  at  a  current  market 
price  and  pay  the  assessment  itself  This  results  in 
the  original  stockholder  -being  "frozen  out."  Any 
future  benefit  from  the  reorganization  is  derived  by 
the  payer  of  the  assessment. 

What  are  ATLANTIC  PORTS  ? 

Boston,  New  York,  Philadelphia  and  Baltimore — 
the  leading  export  points. 

What  is  AVERAGING  OUT  ? 

It  is  the  progressive  increase  of  speculative  trad- 
ing, so  you  can  close  your  deal  with  a  profit  earlier 
than  if  you  had  not  increased  your  holdings.  Ex- 
ample: If  you  buy  100  shares  of  Pennsylvania  at 
no,  and  it  declines  to  108,  you  buy  another  100,  then 
a  recovery  to  109  would  make  you  even, 


THE    INVESTOR'S    CATECHISM  17 


What  is  BACKWARDATION  ? 

It  is  a  London  Stock  Exchange  term,  signifying  the 
premium  paid  for  delay  in  delivering  stocks. 

What  is  a  BALANCE  ? 

It  is  the  amount  required  to  equalize  the  debtor 
and  creditor  sides  of  an  account. 


What  is  BALANCE  OF  TRADE  ? 

It  is  the  difference  in  money  value  between  im- 
ports and  exports  of  a  country.  If  the  United  States 
sells  to  Europe  more  than  it  buys,  the  balance  of 
trade  is  said  to  be  in  favor  of  the  United  States. 

What  is  a  BALE  ? 

In  speculative  cotton  trading,  this  word  repre- 
sents 500  pounds  of  cotton,  or  in  speculative  hops, 
180  pounds.  When  bought  and  sold  for  consumption, 
however,  each  bale  is  accurately  weighed  and  only 
the  net  weight  is  recorded. 

What  is  BALLOONING  ? 

It  refers  to  a  stock  boosted  up  far  beyond  its  in- 
trinsic value  in  the  market  by  favorable  stories, 
fictitious  sales,  or  any  other  methods. 

Which  are  BALTIC  PORTS  ? 

They  are  the  Baltic  Sea  ports  from  which  formerly 
most  of  the  Russian  wheat  was  exported.  Now  the 


i8          THE    INVESTOR'S     CATECHISM 

Russian  wheat  comes    mostly    from    the    Black    Sea 
ports. 

What  is  the  BALTIMORE  PLAN  ? 

A  proposition  that  was  once  made  by  Baltimore 
financiers,  having  for  its  purpose  the  solving  of  the 
currency  problem. 

What  is  BANKING  ? 

Banking  is  nearly  as  old  as  our  civilization.  The 
Bible  speaks  of  money-lenders  and  changers,  but 
modern  banking  has  evolved  from  our  industrial  de- 
velopment and  commercial  conditions.  Modern  bank- 
ing is  practically  only  about  three  hundred  years  old. 
Prior  to  that  time  it  was  'largely  individual  banking. 
Three  centuries  ago  it  was  not  safe  to  venture  out 
after  dark  in  the  streets  of  London  unless  properly 
armed,  and  carrying  valuables  was  attended  with  dan- 
ger. Goldsmiths  and  silversmiths  necessarily  had  to 
keep  large  stocks  of  precious  metals,  and  took  great 
precautions  for  the  protection  of  property  of  this  kind. 
People  gradually  acquired  the  habit  of  depositing 
money  with  them,  paying  something  for  the  privilege 
of  sharing  protection.  In  time  goldsmiths  learned  that 
many  depositors  did  not  require  it  at  once  and  began 
to  loan  to  borrowers  a  part  of  their  surplus,  assuming 
all  risks.  It  was  also  found  that  if  a  man  had  to  dis- 
charge a  debt  it  was  more  convenient  to  give  his 
creditor  an  order  for  the  money  on  the  goldsmith 
than  to  personally  get  the  gold  and  deliver  it.  This 
situation  developed  the  system  of  transfer  of  credits 


THE    INVESTOR'S    CATECHISM  19 

by  means  of  individual  checks.  Loans  through  the 
goldsmith  soon  became  the  custom. 

Modern  banking  has  developed  from  this  beginning. 
The  modern  bank  is  intended  to  receive  on  deposit  and 
make  legitimate  loans  of  the  money  of  its  customers. 
It  makes  this  money  and  its  own  paid-up  capital  the 
basis  of  loans,  on  which  it  charges  interest  in  accord- 
ance with  the  laws  under  which  it  is  chartered.  Some- 
times loans  take  the  form  of  actual  money.  As  a  rule, 
however,  they  are  merely  credits  against  which  the 
borrower  is  privileged  to  draw.  Such  loans  are  en- 
tered on  the  books  of  banks  as  deposits.  In  actual 
experience  the  loans  and  deposits  so  nearly  counter- 
balance each  other  that  only  a  small  percentage  of 
actual  money  is  required  to  transact  the  larger  affairs 
of  business.  It  is  only  in  retail  transactions,  in  the 
payment  of  employees  and  in  the  smaller  daily  affairs 
of  life  that  actual  money  is  necessary. 

The  term  banker  is  very  broadly  used,  particularly 
in  the  United  States.  Stock  and  investment  brokers, 
dealers  in  exchange  and  commercial  paper,  money- 
lenders, etc.,  call  themselves  bankers.  Strictly  speak- 
ing these  are  not  bankers,  although  it  is  generally 
conceded  that  nowadays  the  term  banker  carries 
broader  meaning  than  formerly. 

What  are  BANK  CLEARINGS  ? 

The  total  amount  of  the  checks  and  drafts  ex- 
changed by  banks  and  presented  each  day  at  the 
clearing  house  for  an  adjustment  of  balances.  In 
large  cities — Boston,  Chicago,  New  York,  etc. — less 


ao          THE   INVESTOR'S    CATECHISM 

than  10  per  cent,  of  the  commercial  business  is  trans- 
acted with  currency.  While  "clearings"  do  not  repre- 
sent the  actual  volume  of  transactions  of  banks,  they 
form  an  excellent  basis  for  calculating  the  volume  of 
trade  for  practical  purposes. 

What  is  the  BANK  OF  THE  UNITED  STATES  ? 

An  institution  that  existed  (from  1791-1811  and 
another  from  1817-1833),  each  acting  as  fiscal  agent 
of  the  United  States  Government. 

What  is  the  BANK  OF  ENGLAND  ? 

The  Bank  of  England  is  the  largest  and  most  im- 
portant monetary  institution  in  the  world.  It  was 
incorporated  in  1694,  and  is  the  custodian  of  the  public 
moneys  of  Great  Britain  and  manager  of  the  public 
debt.  Its  official  title  is  "The  Governor  and  Company 
of  the  Bank  of  England."  The  banking  business  of 
the  British  government  is  conducted  by  it,  and  it 
issues  exchequer  and  treasury  bills  and  advances 
money  to  the  government.  It  is  also  the  central  bank 
of  the  City  of  London.  The  other  banks  keep  in  their 
own  banks  only  enough  deposits  for  the  requirements 
of  their  business,  depositing  the  remainder  with  the 
Bank  of  England. 

What  is  a  BANK  OF  ENGLAND  NOTE  ? 

The  circulating  note  or  money  issued  by  the  Bank 
of  England  is  the  important  financial  function  in  the 
United  Kingdom.  The  Bank  of  England  is  permitted 


THE    INVESTOR'S    CATECHISM          ax 

to  issue  a  certain  number  of  notes  based  on  govern- 
ment securities,  and  is  also  privileged  to  issue  on  gov- 
ernment securities  an  amount  equal  to  two-thirds  of 
the  issues  of  all  other  banks  in  England  and  Wales 
when  the  latter  go  out  of  existence  or  surrender  their 
circulation.  The  Bank  of  England  may  also  issue 
notes  beyond  such  amount  it  deems  advisable  by  pro- 
viding and  setting  aside  an  equal  amount  of  gold  coin 
or  bullion. 

During  a  panic,  Parliament  allows  the  bank  to 
increase  the  number  of  notes  it  may  issue  against 
securities.  This  is  possible  by  the  suspension  of  the 
"Bank  Act,"  which  limits  the  amount  of  the  bank's 
circulation  of  notes  backed  only  by  securities.  The 
last  time  the  bank  act  was  suspended  was  in  1866. 

The  Bank  of  England's  notes  are  legal  tender  in 
England  and  Wales,  but  are  not  legal  tender  in 
payments  made  by  the  bank  itself. 

What  is  the  BANK  OF  ENGLAND  RATE  ? 

It  is  the  title  given  to  the  minimum  rate  of  discount 
of  the  Bank  of  England.  The  minimum  rate  is  what 
the  Bank  of  England  itself  will  discount  the  best  three 
months'  bills.  The  official  standard  of  discount  in 
relation  to  the  movement  of  gold  to  and  from  London. 
Raising  the  rate  increases  the  value  of  money  and  the 
object  is  to  attract  gold  from  other  centres  where  the 
value  of  gold  at  the  time  is  less.  The  directors  of  the 
bank  often  insure  the  effectiveness  of  the  rate  by 
borrowing  in  the  money  market,  thus  denuding  it. 


22  THE    INVESTOR'S    CATECHISM 


What  is  a  BANK  STATEMENT  ? 

A  bank  statement  is  issued  from  the  Clearing  House 
of  large  cities  each  week.  The  weekly  statement  is 
the  collective  showing  made  by  the  banks  belonging 
to  the  Clearing  House  Association.  This  consolidated 
bank  statement  in  New  York  shows  the  average  de- 
posits, loans,  specie,  legal  tenders,  circulation  reserve 
and  surplus  reserve  for  the  week  ending  with  and 
including  Friday. 

The  deposits  include  balances  of  persons  and  con- 
cerns, balances  to  the  credit  of  other  banks,  and  all 
other  money  and  credits  subject  to  withdrawal.  Under 
the  item,  Loans,  is  included  money  loaned  and  paper 
bought,  such  as  promissory  notes,  drafts,  etc.  Under 
Specie,  is  included  gold  and  silver  coin,  gold  and  silver 
certificates,  redeemable  in  gold  or  silver.  Legal  tender 
means  United  States  notes  or  greenbacks,  and  treasury 
notes  are  those  issued  for  silver  bullion,  purchased 
under  the  so-called  Sherman  act.  Circulation  means 
the  notes  issued  by  national  banks  which  are  secured 
by  government  bonds,  deposited  by  the  United  States 
Treasurer.  A  bank  cannot  count  circulation  in  its 
reserve,  and  whether  it  is  its  own  circulation  or  the 
circulation  of  some  other  bank,  makes  no  difference. 
Reserve  means  the  amount  of  specie  and  legal  tender 
held.  Surplus  reserve  is  the  amount  of  specie  and 
legal  tender  held  in  excess  of  legal  requirements. 
For  instance,  a  national  bank  in  New  York  City  must, 
by  law,  maintain  a  reserve  equal  to  25%  of  its  profits, 
a  State  bank  must  by  law,  maintain  a  reserve  of  15%. 
In  compiling  a  bank  statement,  a  reserve  of  2$%  is 


THE    INVESTOR'S    CATECHISM          33 

figured  for  State  banks  as  well  as  national  banks.  The 
bank  statement  is  supposed  to  be  made  up  on  rising 
averages  when  the  itemized  sums  have  been  increas- 
ing during  the  week;  or  the  statement  is  remarked  to 
be  on  falling  averages,  when  the  sums  have  decreased 
during  the  week.  The  bank  statement  is  favorable 
when  it  shows  the  position  of  banks  has  been  strength- 
ened by  an  increase  in  surplus  reserve  through  an 
increase  in  cash  holdings  rather  than  by  a  decrease  in 
deposits,  the  latter  is  frequently  affected  by  calling  of 
loans.  Money  loaned  is  largely  credited  to  borrowers 
on  their  deposit  accounts,  increasing  the  total  deposits 
of  the  banks;  the  payment  of  loans  by  borrowers  de- 
creases deposits.  Calling  and  payment  of  loans  do  not 
increase  cash  holdings,  but  simply  change  balances  in 
individual  accounts.  A  reduction  in  deposits  reduces 
the  amount  of  cash  required  as  legal  reserve,  and 
correspondingly  expands  the  surplus  reserve. 

The  bank  statement  is  understood  to  be  unfavor- 
able when  the  position  of  banks  has  been  weakened 
by  a  decrease  in  the  surplus  reserve  through  decrease 
in  cash  holdings  rather  than  an  increase  in  deposits, 
frequently  changed  by  an  expansion  of  loans,  thus  ex- 
panding deposits  and  increasing  cash  required  to  be 
held  as  legal  reserve.  The  bank  statement  is  favor- 
able, however,  if  an  increase  in  loans  be  reported  when 
the  banks  have  a  large  surplus  reserve.  It  may  be 
said  to  be  unfavorable  when  money  is  idly  accumulat- 
ing in  banks  and  deposits  are  increasing,  not  as  a  result 
of  increasing  loans,  but  in  the  absence  of  a  borrowing 
demand  for  money. 


24  THE    INVESTOR'S     CATECHISM 


What  is  a  BARREL  ? 

The  standard  of  a  commercial  barrel  of  pork  is 
figured  at  200  pounds,  but  it  contains  only  190 
pounds  of  fresh  or  green  meat,  and  the  addition  of 
brine  increases  the  weight  to  220  or  225  pounds.  A 
barrel  of  flour  contains  196  pounds;  salt,  280  pounds; 
resin,  280  pounds;  cured  fish,  200  pounds.  The  num- 
ber of  gallons  in  a  barrel  of  molasses,  syrup,  oils, 
turpentine,  wines,  liquors  and  all  liquids  varies  from 
40  to  50  gallons.  Sales  are  made  on  the  basis  of  actual 
contents  only. 

What  is  a  BEAR  ? 

A  Bear  in  Wall  Street  is  a  speculator  who  believes 
in  lower  prices,  who  sell§  stock,  grain,  cotton,  etc., 
short,  or  advises  the  selling  of  stock  believing  it  can 
be  bought  back  at  a  lower  price. 

What  are  BILLS  OF  EXCHANGE  ? 

They  are  written  orders  or  requests  from  one  per- 
son to  another  for  the  payment  of  money  to  a  third, 
the  amount  to  be  charged  to  the  issuers  of  the  bills. 
There  is  practically  no  difference  between  a  bill  of 
exchange  and  a  draft.  A  bill  of  exchange  is  commonly 
applied  to  an  order  for  money  payable  in  a  foreign 
country.  A  draft  is  an  order  for  domestic  uses  of 
payment. 

Bills  of  exchange  are  a  most  important  circulating 
medium.  The  wholesale  transactions  of  the  world, 
between  countries,  are  affected  by  bills  of  exchange, 


THE    INVESTOR'S    CATECHISM  25 

%* 

which  are  international  in  origin.  Commercial  bills 
of  exchange,  accompanied  by  bills  of  lading  or  ware- 
house receipts,  are  very  high  class  and  command  a 
lower  rate  of  discount  than  bills  not  secured.  In  a 
stringent  money  market  they  are  saleable  when  other 
bills  are  refused. 

What  is  BLACK  FRIDAY? 

It  refers  to  Friday,  September  24,  1869,  when  Jay 
Gould,  James  Fisk,  Jr.,  and  his  associates  effected  a 
partial  corner  in  gold,  the  end  of  which  was  a  dis- 
astrous failure,  owing  to  the  Government's  Secretary 
of  the  Treasury,  Boutwell,  coming  to  the  rescue  of  the 
country  with  $4,000,000  of  gold  given  in  exchange  for 
bonds.  In  a  moment  the  corner  collapsed  and  the 
gold  panic  was  broken. 

What  is  a  BLIND  POOL  ? 

A  secret  or  blind  pool  is  created  when  several  per- 
sons contribute  capital  for  operating  in  stocks  or 
bonds  on  the  long  or  short  side,  and  when  only  the 
manager  of  the  pool  knows  in  what  way  the  money  is 
to  be  used.  The  purpose  of  such  a  pool  is  to  fool  the 
other  operators  in  the  market  not  in  the  pool. 

What  is  meant  by  a  BLOCK  ? 

It  refers  to  a  number  of  shares,  5,000,  10,000  15,000 
or  more,  bought  or  sold  in  a  lump  at  one  time. 


a6          THE    INVESTOR'S    CATECHISM 

What  is  a  BOARD  ROOM  ? 

It  is  the  exchange  room  on  a  stock  exchange,  or 
any  room  where  boards  of  directors  of  a  corporation 
meet. 

What  is  a  BONANZA  ? 

A  rich  mine,  vein  or  find  of  ore,  especially  of  silver 
or  gold  ore,  or  a  profitable  investment.  Sometimes 
a  lucky  operation. 

What  is  a  BOND  ? 

A  certificate  of  obligation  usually  issued  by  a  cor- 
poration to  pay  money  secured  by  mortgage  or  other 
guarantee.  It  is  usually  an  interest  bearing  certificate 
issued  in  denominations  of  $1,000.  There  are  numer- 
ous sorts  of  bonds,  some  being  issued  by  corporations, 
others  by  municipalities  or  governments,  and  some  by 
individuals. 

Government  securities  are  generally  designated  as 
bonds,  although  they  were  many  years  ago  known  as 
stocks.  Some  of  the  securities  issued  by  New  York 
City  are  still  designated  as  stocks,  but  American 
municipalities  generally  designate  their  securities  as 
bonds.  Railroads  and  other  corporations  have  both 
bonds  and  stocks. 

What  is  an  ADJUSTMENT  BOND  ? 

A  bond  issued  for  the  purpose  of  adjusting  the 
finances  of  a  company,  usually  at  a  time  of  reorgani- 
zation. The  Atchison,  Topeka  &  Santa  Fe  Railroad 
system  was  reorganized  in  1897.  Some  arrangement 
with  the  old  preferred  stockholders  and  the  holders 


THE   INVESTOR'S   CATECHISM         37 

of  the  general  mortgage  bonds  was  necessary.  Fixed 
charges  had  to  be  reduced,  but  at  the  same  time  the 
reorganization  committee  could  not  avoid  giving  the 
holders  of  a  large  proportion  of  the  old  securities 
something  more  tangible  than  a  mere  preferred  stock. 
A  second  mortgage  bond,  entitled  to  receive  interest 
only  in  case  the  same  had  been  earned,  was  executed 
and  the  holders  of  the  bond  were  not  allowed  to  fore- 
close before  maturity  in  the  event  of  the  interest 
should  not  be  paid.  The  interest  on  this  particular 
issue  was  to  be  accumulative  after  5  years,  but  as  far 
as  any  positive  guarantee  of  interest  being  currently 
paid  was  concerned,  the  issue  was  simply  in  the  same 
class  as  the  ordinary  accumulative  preferred  stock. 
This  issue  of  bonds  was  a  compromise  for  the  benefit 
of  the  holders  of  old  securities,  and,  therefore,  was 
given  the  title  of  "adjustment  bond;"  since  issued  by 
other  companies. 

What  are  CONVERTIBLE  BONDS  ? 

Usually  Convertible  Bonds  are  a  direct  obligation 
of  the  corporation  issuing  them  and  have  a  fixed  rate 
of  interest,  but  may  not  be  a  direct  lien  on  the  prop- 
erty; in  some  instances  they  are  a  direct  lien  on  the 
railroad,  or  if  issued  by  other  corporations,  on  the  real 
property. 

Holders  of  convertible  bonds  may  have  the  right  to 
convert  them  into  stock  at  such  times  as  they  may 
elect,  according  to  the  terms  of  conversion  stipulated 
in  the  bond.  If  a  direct  lien  on  good  security,  con- 
vertible bonds  are  a  good  investment. 


28          THE    INVESTOR'S    CATECHISM 


What  is  a  GUARANTEED  BOND  ? 

A  bond  having  the  payment  of  its  principal  and  in- 
terest guaranteed  by  another  corporation.  When  a 
railroad  leases  another  railroad  frequently  it  guaran- 
tees the  principal  and  interest  on  the  bonds  of  the 
leased  road.  This  guarantee  may  be  shown  on  the 
bond  itself,  or  it  may  be  stipulated  in  the  lease. 

What  are  INVESTMENT  BONDS  ? 

These  bonds  are  issued  in  various  denominations  and 
at  all  rates  of  interest  from  $%  to  7%.  They  embrace 
various  railroad  bonds,  public  utility  issues,  industrial 
issues,  bonds  on  mines  and  other  enterprises,  in  addi- 
tion to  government  or  municipal  securities. 

What  is  an  OPTIONAL  BOND  ? 

A  bond  maturing  at  a  specified  date,  which  may  be 
redeemed  after  a  stipulated  date  at  the  option  of  the 
company  issuing  it. 

What  is  a  REGISTERED  BOND  ? 

It  is  one  bearing  the  name  of  the  owner  and 
registered  in  his  name.  This  style  of  bond  is  trans- 
ferable and  contains  a  form  for  assignment  and  trans- 
fer. When  a  registered  bond  is  transferred,  a  new 
bond  is  issued  to  take  its  place.  As  is  the  case  with 
stock,  any  change  of  address  should  be  sent  to  the 
company.  Some  coupon  bonds  are  registered,  but  not 
as  a  rule. 


THE    INVESTOR'S    CATECHISM  29 

What  is  a  REGISTERED  COUPON  BOND  ? 

A  registered  coupon  bond  is  one  on  which  the 
principal  may  be  paid  only  to  the  person  in  whose 
name  it  is  recorded.  The  interest  coupons,  however, 
are  payable  to  bearer  and  may  be  collected  by  any 
holder. 

What  are  GOLD  BONDS  ? 

Bonds  on  which  principal  and  interest  are  payable 
in  gold.  Prior  to  1896,  when  there  was  doubt  in  the 
minds  of  investors  whether  the  United  States  would 
maintain  the  gold  standard,  corporations  found  it 
necessary  to  insert  what  was  called  the  "gold  clause"  in 
mortgages  issued  to  insure  investors  purchasing  the 
bonds.  It  was  difficult  to  float  issues  which  did  not 
include  the  gold  clause.  The  reason  was  that  in  the 
event  of  this  country  going  on  a  silver  basis  of  cur- 
rency, the  principal  and  interest  of  the  bonds  would 
have  been  payable  in  depreciated  money,  and  the  in- 
vestor might  lose  as  much  as  one-half  of  his  principal. 
The  "gold  clause"  is  now  unnecessary,  as  all  doubt 
about  the  permanency  of  our  gold  standard  has 
passed. 

What  are  MUNICIPAL  BONDS  ? 

Those  issued  by  a  town  or  city  having  a  charter 
of  incorporation  conferring  privileges  of  local  self- 
government. 

What  is  meant  by  BOOK  VALUE  ? 

Usually  applied  to  bank  stocks,  though  sometimes 
used  in  stocks  of  other  corporations.  The  following 


go          THE    INVESTOR'S    CATECHISM 

plan  is  adopted  to  learn  the  book  value  of  any  particu- 
lar stock: 

Supposing  the  official  statement  of  a  bank  shows 
surplus  and  undivided  profits  equal  to  50%  on  the 
stock  outstanding,  then  the  book  value  of  the  stock 
is  100%  plus  50%  or  a  total  of  150%.  If  the  bank 
shows  no  net  profits,  but  a  deficit  equal  to  10%  on  the 
stock,  then  the  book  value  of  the  stock  would  only  be 
90.  The  book  value  of  stocks  of  other  corporations  is 
ascertained  in  the  same  manner,  but  it  is  more  puzzling 
for  the  reason  that  it  is  not  usually  easy  to  ascertain 
the  uniform  facts  regarding  assets,  liabilities,  surplus, 
etc. 

What  is  meant  by  BOOKS  OPENED  ? 

After  the  transfer  books  .of  the  company  are  opened 
following  the  election  or  stockholders'  meeting,  the 
ownership  of  a  security  can  be  transferred  on  the  rec- 
ords. While  certificates  can  change  hands  at  any  time, 
they  cannot  be  formally  transferred  from  one  holder 
to  another  during  the  period  when  the  transfer  books 
are  closed. 

What  is  a  BROKER  ? 

One  who  executes  orders  in  stocks,  bonds  or  any 
securities  for  the  purchase  or  sale  of  same.  In  real 
estate  transactions  he  is  called  an  agent. 

What  is  an  ARBITRAGE  BROKER  ? 

A  broker  who  makes  a  specialty  of  arbitrage  busi- 
ness. Some  New  York  Stock  Exchange  houses  with 
London  connections  are  called  "arbitrage  houses," 


THE   INVESTOR'S    CATECHISM          31 

Some  curb  brokers  arbitrage  between  San  Francisco, 
New  York  and  Boston. 

What  is  a  BOND  BROKER  ? 

One  who  makes  a  specialty  of  buying  and  selling 
bonds. 

What  is  a  COMMISSION  BROKER  ? 

One  who  transacts  business  for  his  clients  on 
commission  only. 

What  is  a  CURB  BROKER  ? 

One  who  trades  on  the  outside  or  curb  market  only. 

What  is  an  INVESTMENT  BROKER  ? 

One  who  buys  and  sells  stocks  outright  for 
customers,  for  cash  and  not  on  margin ;  one  who  deals 
in  dividend  paying  securities. 

What  is  a  MONEY  BROKER  ? 

He  is  a  dealer  in  coin,  bullion  and  foreign  exchange ; 
usually  a  Stock  Exchange  member,  whose  business  is 
the  lending  of  money  on  call  for  financial  banks. 

What  is  an  OUTSIDE  BROKER  ? 

A  broker,  not  a  member  of  an  exchange,  who  deals 
in  securities  not  dealt  in  on  a  stock  exchange.  A 
dealer  in  the  outside  market  or  on  the  curb  is  recog- 
nized as  an  outside  broker.  In  New  York  such  a 
broker  is  regular.  In  London,  however  an  outside 


32          THE    INVESTOR'S    CATECHISM 

broker  is  not  a  member  of  the  London  Stock  Ex- 
change, and  is  sometimes  classed  as  a  bucket  shop- 
keeper. Many  English  outside  brokers  do  a  legitimate 
business. 

What  is  a  TWO-DOLLAR  BROKER  ? 

He  is  a  member  of  the  Stock  Exchange  who  exe- 
cutes orders  for  fellow-members  for  a  commission  of 
$2  per  hundred  shares. 

What  is  a  BREAK  ? 

When  stock  is  kept  up  by  artificial  means,  and 
attacked  by  the  bears  or  other  causes,  it  declines,  it  is 
called  a  break. 

What  is  a  BUCKET  SHOP  ? 

A  bucket  shop  is  a  place  not  recognized  by  a  regular 
exchange,  where  bets  are  made  on  regular  exchange 
quotations.  No  actual  transactions  take  place.  A  mar- 
gin is  put  up  by  the  customer  with  the  Bucket  shop 
broker  and  commission  is  charged  for  buying  and  sell- 
ing the  same  as  on  an  exchange.  When  the  quotation 
shows  a  profit  to  the  customer  he  is  privileged  to  de- 
mand the  profit ;  when  the  limit  of  the  customer's  mar- 
gin has  been  reached  and  the  customer  has  lest  his  bet, 
the  transaction  is  closed. 

What  is  BUCKETING  ? 

An  operation  carried  on  by  a  broker  at  his  own 
personal  account  or  risk  against  a  customer's  pur- 
chase, without  investing  any  money  in  actual  stocks. 


THE    INVESTOR'S    CATECHISM          33 

Supposing  a  customer  buys  one  hundred  shares  of 
stock  at  $105,  the  broker  sells  one  hundred  shares  at 
the  same  price,  the  margin  that  the  customer  has  put 
up,  say  ten  per  cent.,  the  broker  has  the  use  of.  If 
the  stock  goes  down  to  $103  and  the  customer  fails 
to  sell,  the  broker,  of  course,  buys  and  makes  the  dif- 
ference between  $105  and  $103,  two  points  besides 
his  commission.  If  the  stock  goes  up  to  $107,  the 
broker,  of  course,  loses  two  points  less  his  commission. 
The  broker  on  the  percentage,  which  his  commission 
allows  him  in  the  trade,  will  win  at  the  end.  Several 
trades  can  be  carried  in  the  same  way. 

What  is  a  BULGE  ? 

A  sudden  or  sharp,  but  comparatively  small 
advance  in  the  market. 

What  is  a  BULL  ? 

It  is  a  speculator  in  Wall  Street  who  believes  prices 
of  stocks  will  rise,  and  works  to  secure  them.  A  bull 
is,  therefore,  anyone  who  buys  or  favors  buying  stocks, 
grain,  cotton,  or  any  other  speculative  commodity,  ex- 
pecting to  sell  at  higher  prices. 

What  is  a  BUSHEL  ? 

In  the  different  States  the  number  of  pounds  re- 
corded on  'change  in  a  bushel  is  fixed  by  law,  generally 
uniform,  but  it  varies  a  little. 


34          THE    INVESTOR'S    CATECHISM 

What  is  a  BUYER'S  OPTION  ? 

When  securities  are  bought  on  "buyer's  option"  the 
buyer  may  demand  delivery  of  the  stock  on  any  day 
within  the  time  specified  by  giving  one  day's  notice  to 
the  seller.  If  not  "called,"  the  purchaser  is  forced  to 
take  the  stock  at  the  end  of  ten  days.  The  buyer, 
unless  the  contract  is  "flat,"  pays  the  seller  interest 
at  the  legal  rate  on  the  price  of  the  stock  up  to  day  of 
delivery. 

The  New  York  Stock  Exchange  rules  prohibit  any 
"buyer's"  or  "seller's"  option  to  be  entered  into  for 
less  than  four  days  or  more  than  sixty  days. 

What  is  BUYING  ON  A  SCALE,  UP  OR  DOWN  ? 

Buying  at  regular  intervals.  To  illustrate:  Buying 
New  York  Central  at  no,  108,  106,  104  and  102  would 
be  buying  on  a  2  per  cent,  declining  scale.  Selling 
on  a  scale  is  the  reverse. 

What  is  the  meaning  of  BUYING  ON  MARGIN  ? 

It  is  for  a  man  to  deposit  a  sum  of  money  with  a 
broker  with  an  order  to  the  broker  to  buy  or  sell  for 
him,  stocks,  or  grain,  cotton,  coffee,  etc.,  to  be  held 
until  ordered  disposed  of,  or  purchased  by  the  man  or 
customer.  Illustration: 

A  goes  into  a  broker's  office  and  asks  him  to  buy 
one  hundred  shares  of  New  York  Central,  which  is 
then  quoted  at  par,  $100.  If  A  were  to  buy  the  stock 
outright,  one  hundred  shares  of  New  York  Central, 
at  $100  would  cost  him  $10,000.  But  A  buys  one 


THE    INVESTOR'S    CATECHISM          35 

hundred  shares  of  New  York  Central  at  $100,  and  de- 
posits $500  with  the  broker,  which  is  five  points  or 
five  per  cent,  of  the  purchase  price.  The  broker  holds 
that  stock  for  A  until  A  orders  him  to  sell  it  if  the 
stock  advances  in  price.  If  the  stock  goes  down  under 
$100,  when  it  has  reached  $95,  which  is  five  points 
under  par,  the  broker  will  sell  A's  stock  unless  A  de- 
posits an  additional  sum,  which  will  secure  the  broker 
against  loss.  If  the  broker  sells  the  stock  at  $95,  A 
loses  his  $500  and  commission  and  loses  all  interest 
in  the  stock.  This  illustration  shows  that  buying  on 
margin  is  just  what  the  word  implies,  that  is,  the  pay- 
ment of  a  margin  or  part  of  the  purchase  price. 

What  is  BUYING  OUTRIGHT? 

Purchasing  stocks  and  paying  their  full  value,  then 
taking  them  away,  or  leaving  them  in  the  broker's 
possession  subject  to  orders. 

What  is  BUYING  OR  SELLING  AT  THE 
OPENING  ? 

It  means  to  execute  a  trade  immediately  after  the 
Exchange  has  opened,  at  the  prevailing  price. 

What  is  a  BY-BIDDER  ? 

It  is  one  who  bids  at  auction  in  behalf  of  the  owner 
for  the  purpose  of  advancing  the  market  price  of  the 
security  or  property. 


36         THE  INVESTOR'S  CATECHISM 

What  are  CABLES  ? 

The  cablegrams  reporting  foreign  markets.  Public 
cables  are  received  daily  by  the  large  exchanges  from 
Europe,  and  private  cables  from  special  correspond- 
ents are  received  daily  by  private  banking  and 
commission  stock  and  grain  houses. 

What  is  a  CALL  ? 

A  call  on  a  stock  or  bond  is  a  contract  or  written 
agreement  in  which  one  person  undertakes  to  deliver 
to  another  the  security  named  in  the  agreement  with- 
in a  specified  time  at  a  particular  price  if  demanded. 

What  are  CALL  BONDS  ? 

A  call  bond  contains  a  clause  giving  the  company 
issuing  the  bond  the  right  to  redeem  the  principal  as 
a  stated  amount  on  a  certain  date.  Interest  on  such 
a  bond  usually  ceases  after  said  right  has  been 
exercised. 

What  is  a  CALL  LOAN  ? 

A  call  loan  is  one  payable  on  call  or  demand.  In 
Wall  Street  a  very  large  amount  of  money  is  loaned 
by  the  banks  on  call  to  the  brokers,  who  are  supposed 
to  deposit  collateral  to  cover  the  loan.  By  the  New 
York  Stock  Exchange  rules  a  demand  for  the  pay- 
ment of  a  call  loan  must  be  made  before  i  P.  M.  on 
any  given  day,  and  payment  must  be  made  by  2:15 
P.  M.  the  same  day.  Notice  must  also  be  given  by 
the  borrower  of  his  intention  to  pay  a  call  loan  before 
I  o'clock,  and  the  payment  must  be  made  by  2:15 
o'clock. 


THE    INVESTOR'S    CATECHISM          37 

What  is  a  CAMBIST  ? 

A  manual  describing  the  moneys,  weights  and 
measures  of  different  countries,  and  their  equiva- 
lents in  exchange,  also  one  versed  in  exchange  values, 
or  a  dealer  or  speculator  in  bills  of  exchange. 

What  are  CAPITAL  ASSETS  ? 

All  the  real  and  convertible  assets  of  a  corporation, 
divided  into  fundamental  and  liquid  assets. 

What  are  CAPITAL  LIABILITIES  ? 

They  are  stocks  and  bonds,  income,  debentures  and 
mortgages. 

What  are  CAR  LOTS  ? 

The  number  of  cars  of  various  grains  received  and 
inspected  daily  at  the  leading  grain  centres  of  the 
country. 

What  are  CARRYING  CHARGES  ? 

The  interest  paid  by  purchasers  of  stocks  on  the 
amount  represented  by  the  difference  between  the 
margin  deposited  and  the  market  value  of  the  stock. 
Sellers  of  "short"  stocks,  as  a  rule,  are  not  obliged  to 
pay  interest  charges,  as  these  devolve  on  the  traders 
who  buy  on  a  margin.  Carrying  charges  on  grain  con- 
sist of  storage,  interest  and  insurance.  They  are 
always  represented  by  the  excess  of  the  price  for 
future  delivery  over  the  cash  price  of  any  commodity. 
Example :  If  September  wheat  is  4  cents  higher  than 
cash  wheat,  the  4  cents  represents  warehousing  and 


38          THE    INVESTOR'S    CATECHISM 

insurance,  or  "carrying  charges"  up  to  the  expiration 
of  the  option.  Should  the  cash  market  decline  I  cent 
by  September,  the  short  seller  makes  5  cents  profit ; 
if  it  advances  3  cents,  his  profits  are  one  cent. 

What  is  meant  by  the  term  CARRY  STOCK  ? 

It  means  to  hold  stock  with  the  expectation  of 
selling  it  at  an  advance  should  the  market  advance. 

What  is  meant  by  the  term  CASH  ? 

Stock  bought  "cash"  "means  that  the  contract 
entered  upon  shall  be  fulfilled  by  payment  and 
delivery  of  stock  at  or  before  2:15  P.  M.,  according 
to  Stock  Exchange  rules,  on  the  day  of  the  sale. 

What  is  CASH  GRAIN  ? 

Grain  purchased  or  sold  for  immediate  delivery,  or 
that  may  be  delivered  during  the  current  month. 

What  are  CATS  AND  DOGS  ? 

Worthless  securities.  Usually  applied  to  mining 
flotation  prospects. 

What  is  a  CENTAL  ? 

A  term  applied  to  a  hundredweight,  or  100  pounds 
avoirdupois. 


THE    INVESTOR'S    CATECHISM          39 


What  is  a  CENTIME  ? 

It  is  a  monetary  unit  used  by  France  and  Belgium ; 
about  the  i-iooth  part  of  a  franc;  5  centimes  approxi- 
mately equal  I  cent  of  American  money.  The  Paris 
and  Antwerp  quotations  are  cabled  in  centimes. 


What  is  a  CERTIFIED  CHECK  ? 

A  check  drawn  on  a  bank,  having  a  written  endorse- 
ment on  its  face,  the  signature  of  the  bank  paying 
teller  or  cashier,  certifying  to  the  signature  of  the 
drawer  and  to  the  fact  that  the  latter  has  sufficient 
funds  on  deposit  with  which  to  pay  the  check. 

What  is  meant  by  'CHANGE  ? 

An  abbreviation  for  exchange,  applied  to  stock 
and  grain  exchanges. 

What  are  CHANGING  EIGHTHS  AND 
QUARTERS  ? 

Applied  to  scalpers  or  quick  traders  who  speculate 
in  stocks  and  take  small  profits  in  eighths  and 
quarters. 

What  is  a  CHARTER  ? 

A  certificate  of  incorporation  of  a  company  con- 
ferred by  act  of  legislature  which  allows  it  to  do 


40         THE    INVESTOR'S    CATECHISM 

business  along  lines  as  specified  in  the  charter,  which 
usually  defines  the  general  purposes  and  limits  the 
power  and  privileges  of  the  corporation. 

What  is  a  CHECK  COLLECTION  CHARGE  ? 

It  is  a  charge  made  by  banks  for  the  collection  of 
funds  due  on  checks  drawn  on  out-of-town  banks. 
Many  banks  accept  out-of-town  checks  for  collection 
only. 

What  do  the  initials  C.  I.  F.  stand  for  ? 
Charges,  insurance  and  freight  paid  or  included. 

What  is  a  CIPHER  CODE  ? 

A  compilation  of  words  which  signify  phrases, 
sentences  and  numbers,  specially  applied  so  that 
telegrams  and  cables  can  be  sent  economically  and 
privately.  There  are  several  different  code  books  in 
use. 

What  are  CLEARANCES  ? 

Freight  shipped  by  water  and  cleared  from  interior 
of  coast  ports. 

What  are  CLEARING  HOUSE  CERTIFICATES  ? 

They  are  certificates  issued  by  Clearing  House 
Associations  in  a  time  of  emergency  or  monetary 
stringency  against  collateral  approved  by  a  loan 
committee. 


THE    INVESTOR'S    CATSCtttSM          4* 

What  is  a  CLIQUE  ? 

A  combination  of  operators,  controlling  large  capi- 
tal used  in  order  to  manipulate  or  influence  the  market 
up  or  down. 

What  is  a  CLOSE  CORPORATION  ? 

An  incorporated  company,  the  stock  of  which  is 
held  by  a  limited  number  of  persons  and  is  not  in 
the  hands  of  the  public.  Usually  in  a  close  corpora- 
tion there  is  an  agreement  or  understanding  among 
the  few  stockholders  whereby  each  is  prohibited 
from  disposing  of  or  selling  his  interest  without  the 
consent  of  the  others. 

What  are  COALERS  ? 

The  leading  railroads  known  as  coalers  are  the 
Delaware,  Lackawanna  &  Western,  Delaware  & 
Hudson,  Jersey  Central,  and  Reading. 

What  are  COLLATERALS  ? 

Stocks  deposited  with  banks  or  brokers  as  security 
when  money  is  borrowed,  or  to  secure  a  margin 
account. 

What  is  COMMERCIAL  CREDIT  ? 

It  is  the  basis  of  credit  established  by  commercial 
agencies  such  as  Bradstreet,  Dun  and  others. 

What  is  COMMERCIAL  PAPER  ? 

Commercial  paper  means  acceptances  and  promis- 
sory notes.  Acceptances  are  drafts  or  bills  of  ex- 
change which  have  been  accepted.  In  large  cities  there 


42          THE    INVESTOR'S    CATECHISM 

is  a  great  deal  of  business  transacted  in  buying  and 
selling  commercial  paper.  Individual  dealers  buy 
from  makers  at  one  rate  of  discount  and  sell  to  banks 
and  other  dealers  at  a  lower  rate.  Negotiable  notes 
drawn  by  merchants  and  accepted  for  discount  by 
banks.  High-class  commercial  paper  is  considered  a 
good  investment. 

What  are  COMMISSIONS  ? 

Brokers'  fees  or  charges  for  executing  buying  and 
selling  orders. 

What  are  COMMISSION  HOUSES  ? 

Houses  buying  and  selling  stocks  only  for  cus- 
tomers. They  do  not  speculate  for  their  own 
account. 

What  is  a  COMMITMENT  ? 

It  is  an  act  of  engagement  or  pledging  in  the 
market  among  brokers.  A  verbal  agreement  to  buy 
or  sell  at  a  certain  price. 

What  is  a  COMMON  CARRIER  ? 

Any  railroad  or  steamship  line  undertaking  to 
transport  goods  for  the  public  is  a  common  carrier, 
and  as  such  is  liable  for  losses  and  injuries  to  goods, 
except  as  specified  in  the  carrying  contract,  or  from 
carelessness  of  the  owner  of  the  property  carried,  etc. 

What  is  a  COMPARISON  ? 

At  the  close  of  the  Stock  Exchange,  brokers'  mes- 
sengers compare  the  day's  transactions.  If  John  Doe 
sells  100  shares  of  New  York  Central  to  Robert  Evans 


THE    INVESTOR'S    CATECHISM          43 

at  115,  John  Doe's  messenger  goes  to  the  office  of 
Robert  Evans  and  compares  the  transaction.  Robert 
Evans'  messenger  makes  a  trip  to  the  office  of  John 
Doe,  so,  if  any  mistake  or  friction  has  occurred,  it  is 
adjusted  before  the  Board  opens  on  the  day  following. 

What  is  CONDUCTING  TRANSPORTATION  ? 

It  refers  to  a  railroad  report  item  that  includes  all 
expenses  in  connection  with  the  business  of  hauling, 
transporting,  or  storing. 

What  is  meant  by  CONSIGN  ? 

It  is  the  act  of  sending  goods  to  an  agent  or  repre- 
sentative, usually  to  be  sold.  The  goods  are  a 
consignment;  the  sender  is  the  consignor  and  the 
receiver  is  a  consignee. 

What  is  a  CONSOL  ? 

The  term  is  an  abbreviation  of  consolidated  an- 
nuities. It  is  specifically  used  in  England  in  connec- 
tion with  the  funded  debt  of  Great  Britain.  The 
debt  of  England  is  in  the  form  of  stock  representing 
a  consolidation  of  various  loans,  and,  therefore,  is 
commonly  known  as  English  Consols.  This  public 
debt,  representing  nine  different  loans  in  1851,  was 
consolidated  into  3%  stocks  or  in  bonds.  In  1888 
the  3%s  were  converted  into  2^%,  and  in  1903  the 
rate  was  reduced  to 


44          THE    INVESTOR'S    CATECHISM 

What  is  the  meaning  of  CONTANGO  ? 

It  is  a  London  Stock  Exchange  term  and  refers  to 
the  rate  paid  for  carrying  shares  from  one  settlement 
day  to  another.  If  a  broker  desires  to  continue 
shares  or  to  postpone  the  day  of  delivering,  he  pays 
a  premium.  In  the  seller's  case  such  a  premium  is 
called  Backwardation,  but  in  the  buyer's  case  it  is 
called  Contango. 

What    are    CONTINENTAL    MARKETS? 

The  markets  of  Paris,  Berlin,  and  Antwerp  are 
classed  as  such. 

What  is  meant  by  CONTRACT  GRADE  ? 

The  grade  of  wheat  delivered  in  fulfillment  of  future 
contracts  must  be  up  to  contract  grade. 

What  is  meant  by  CONVERSION  ? 

Sometimes  bonds  are  issued  with  a  proviso  which 
makes  them  exchangeable  for  their  equivalent  in 
stock.  Bonds  of  this  character  are  known  as  con- 
vertible bonds,  and  their  exchange  for  stock  is  termed 


"conversion.*1 


What  are  COPPERS  ? 


The  copper  mine  stocks  are  referred  to  as  Coppers 
in  the  market. 

What  is  a  CORNER  ? 

A  corner  in  a  stock  is  made  possible  by  the  purchase 
of  all  the  outstanding  stock  of  a  company.  Then 
quotations  can  be  advanced  at  the  will  of  the  opera- 


THE    INVESTOR'S    CATECHISM          45 

tors.  Corners  in  stocks  are  not  frequent  nowadays. 
When  one  is  engineered  it  is  worked  against  a  short 
interest.  The  usual  method  is  for  the  owners  of  the 
stock  to  loan  it  freely,  circulate  depressing  news,  sell 
the  stock  down  and  induce  speculators  to  sell  it  short. 
As  soon  as  a  large  short  interest  is  created,  stock 
loaned,  is  recalled,  and  those  who  have  short  contracts 
outstanding  must  purchase  the  stock  to  cover  their 
deliveries  at  the  prices  determined  upon  by  the  men 
who  operate  the  corner.  In  grain  dealings,  where  the 
purchases  of  operators  are  in  excess  of  contract  grain 
in  the  regular  warehouses  on  the  final  delivery  day 
of  the  month  for  which  such  purchases  have  been 
made,  the  grain  in  question  is  cornered.  Several 
tremendous  corners  have  been  operated  on  the 
Chicago  Board  of  Trade  and  the  New  York  Cotton 
Exchange. 

What  is  a  CORPORATION  ? 

An  artificial  creation  by  law,  consisting  of  one  or 
more  persons  united  in  one  body  under  certain  grants 
to  secure  a  succession  of  members  without  changing 
the  identity  of  the  body;  being  empowered  to  act  in 
a  specified  capacity,  or  to  transact  some  designated 
business  the  same  as  an  individual.  A  close  corpora- 
tion is  one  in  which  vacancies  are  filled  by  the 
corporation  itself.  A  sole  corporation  consists  of  a 
single  person  at  any  one  time,  vested  with  certain 
legal  capacities  and  powers  not  otherwise  possessed. 
A  joint  stock  corporation  is  one  in  which  the 
ownership  of  the  stock  is  divided  into  shares. 


46          THE    INVESTOR'S    CATECHISM 


What  is  meant  by   COTTON   FUTURE  ? 

It  is  an  option  on  a  future  month  traded  in  by 
buyers  and  sellers  of  cotton  at  a  certain  premium  or 
discount  under  the  price  of  spot  cotton.  At  the 
expiration  of  a  future  contract,  the  cotton  is  delivered 
and  then  becomes  spot  cotton. 

What  is  SPOT  COTTON  ? 

It  signifies  the  staple  article  of  a  certain  grade  which 
is  ready  for  actual  delivery  to  the  consumer  on 
purchase. 

What  is  a  COUPON  ? 

In  Wall  Street  coupons  are  understood  to  be  the 
obligations  for  interest  on  bonds.  They  are  a  printed 
part  of  the  bond,  attached  in  ticket  form  so  that  they 
may  be  conveniently  cut  off  as  the  interest  becomes 
due. 

What  is  a  COUPON  BOND  ? 

It  is  a  bond  payable  to  bearer  without  registration 
of  the  owner's  name,  carrying  a  coupon  covering  the 
interest  which  is  clipped  at  each  interest  period, 
and  deposited  for  collection,  the  same  as  a  check,  or 
presented  for  payment  at  the  office  of  the  corporation 
issuing  the  bond  of  the  corporation's  agent.  Rail- 
roads and  other  corporation  bonds  sold  to  investors 
are  usually  coupon  bonds.  Coupon  bonds  are  much 
more  available  for  speculative  dealings  and  for  sell- 
ing generally,  and  as  a  rule  are  quoted  at  slightly 
higher  prices  than  registered  bonds  for  the  simple 


THE    INVESTOR'S    CATECHISM          47 

reason  that  a  change  in  ownership  involves  no  formal 
transfer  beyond  the  mere  delivery  of  the  bond  itself. 
Sometimes  they  are  convertible  into  registered  bonds 
and  vice-versa. 

What  is  COVERING  OF  SHORTS  ? 

.  When  stock  has  been  sold  and  the  market  advances, 
the  seller,  to  protect  himself,  buys  where  he  can  in 
order  to  make  delivery.  This  is  called  "covering  short 
sales"  or  "running  to  cover,"  at  a  loss.  If,  however, 
the  stocks  decline,  then  they  are  bought  in  at  a  profit, 
which  process  is  also  covering  one's  shorts. 

What  is  a  CRAZE  ? 

When  one  has  an  extravagant  desire  to  buy  or  sell, 
he  is  said  to  have  a  craze.  It  is  a  common  disease  in 
Wall  Street. 

What  is  meant  by  CREDIT  MOBILIER  ? 

It  was  a  financial  institution  incorporated  in  France 
in  1852  to  place  investments  on  security  of  personal 
property,  and  for  general  financial  operations.  The 
one  chartered  in  Pennsylvania  in  1863,  which  under- 
took the  construction  of  the  Union  Pacific  railroad, 
and  collapsed  amid  a  political  scandal  involving  many 
prominent  financiers  and  politicians,  was  a  Credit 
Mobilier. 

What  is  a  CROSS  TRADE  ? 

When  a  broker  has  an  order  to  buy  and  sell  stock 
at  the  same  price,  the  fulfillment  of  the  orders  by 
entering  one  against  the  other  is  called  a  cross  trade. 


48  THE    INVESTOR'S     CATECHISM 

Such  trading  is  not  sanctioned,  and  to  legalize  the 
transactions,  the  broker  makes  a  nominal  purchase 
and  sale  through  another  broker. 

What  is  the  CURB  MARKET  ? 

The  curb  market  consists  of  a  number  of  brokers 
in  miscellaneous  and  unlisted  stocks  and  bonds  who 
do  most  of  their  trading  in  Broad  Street,  just  below 
the  New  York  Stock  Exchange.  Usually  these  brokers 
are  the  representatives  of  Stock  Exchange  firms,  but 
many  are  independent,  dealing  in  mining  securities. 

What  are  CURBSTONE  or  CURB  BROKERS  ? 

Some  years  ago  the  name  was  applied  to  speculators 
who  carried  their  offices  in  their  hats,  buying  and  sell- 
ing puts  and  calls.  Now,  however,  more  dignity  is 
attached  to  the  name  as  it  includes  all  those  brokers 
who  deal  in  New  York's  curb  market.  Curb  brokers 
are  not  necessarily  members  of  any  recognized 
exchange. 

What  are  CURRENT  ASSETS  ? 

A  term  used  in  connection  with  the  balance  sheet 
of  a  railroad  or  other  corporation  distinguishing  the 
so-called  shifting  or  changeable  assets  from  capital 
assets.  In  steam  railroads,  current  assets  usually 
include  cash  on  hand,  loans,  bills  and  accounts 
receivable,  amounts  due  from  other  companies  and 
individuals,  companies'  agents,  and  advances  to  other 
companies,  etc.  The  "capital  assets"  as  distinguished 
from  the  "current  assets"  include  cost  of  road  and 
equipment,  permanent  investments,  etc. 


THE    INVESTOR'S    CATECHISM          49 

What  are  CURRENT  LIABILITIES  ? 

Current  liabilities  of  corporations  or  railroads 
include  loans  and  bills  payable,  accounts  payable,  pay- 
rolls and  vouchers,  interest  and  dividends  accrued, 
amounts  due  to  other  companies,  etc.  Capital  liabili- 
ties on  the  cover  capital  stock,  bonded  debt,  mortgages, 
etc. 

What  is  meant  by  CUTTING  A  MELON  ? 

When  a  corporation  makes  an  extra  distribution 
to  its  stockholders,  either  in  the  form  of  an  extra 
large  cash  dividend  or  stock  dividend,  it  is  remarked 
that  the  company  is  "cutting  a  melon." 

What  does  the  sign  d.  mean  ? 

It  stands  for  an  English  penny;  equal  to  about  two 
American  cents. 

What  are  DAYS  OF  GRACE  ? 

They  are  the  three  days  directly  following  the 
maturity  of  a  note  or  bill,  and  in  some  States  allowed 
debtors  by  law  as  an  extension  in  which  to  make 
payment. 

What  is  a  DEAD  ONE  ? 

A  term  used  to  define  a  bankrupt  in  the  market. 

What  is  a  WALL  STREET  DEAL  ? 

It  is  when  a  combination  of  men  enter  into  a  secret 
agreement  or  form  a  pool  to  depress  or  advance  a 
stock  or  group  of  stocks,  for  the  purpose  of  making 
money  out  of  other  speculators.  Such  an  operation 
is  called  a  Wall  Street  deal. 


5o          THE    INVESTOR'S    CATECHISM 

What  is  a  DEBENTURE  ? 

A  debenture,  or,  in  other  words  a  debenture  bond, 
is  simply  a  certificate  of  indebtedness  or  promise  to 
pay,  issued  by  a  corporation.  It  is  not  a  mortgage 
bond.  Usually  it  differs  from  the  average  income 
bond  as  it  contains  a  promise  to  pay  a  certain  amount 
of  interest  at  stated  periods.  While  an  income  bond 
may  be  a  mortgage  and  not  a  "debenture,"  an  income 
bond  cannot  be  foreclosed  before  maturity,  which  may 
be  a  half  century  away,  which  makes  the  position  of 
the  principal  of  the  two  classes  of  bonds  practically 
the  same. 

What  is  a  DEFAULT  ? 

A  default  on  a  bond  is  the  failure  to  pay  the  interest 
or  principal  when  due.  Usually  a  default  furnishes 
ground  for  application  for  a  receivership,  although  in 
some  instances  mortgage  bonds  carry  a  clause  not 
allowing  the  holder  to  begin  foreclosure  proceedings 
until  the  bond  has  defaulted  over  a  certain  stated 
period. 

What  are  DEFERRED  SHARES  ? 

The  stock  of  a  corporation  which  are  depending 
on  some  future  event  to  realize  a  dividend.  For 
instance,  when  the  net  earnings  shall  have  amounted 
to  more  than  enough  to  pay  a  dividend  on  the  com- 
mon stock,  then  the  deferred  shares  come  in  for  a 
dividend.  Such  shares  are  not  usual. 

What  is  a  GOOD  DELIVERY  ? 

When  a  certificate  of  stock  has  been  properly 
transferred  and  the  signature  of  the  holder  has  been 


THE    INVESTOR'S    CATECHISM          51 

properly  filled  in  and  witnessed  by  a  member  of  the 
Stock  Exchange,  or  a  firm  in  good  standing,  the  stock 
is  a  good  delivery.  Bad  deliveries  are  so  termed  when 
the  rules  governing  good  deliveries  are  violated. 
Sometimes  coupons  attached  to  bonds  are  worn  or 
mutilated  so  that  they  are  bad  deliveries.  New  shares 
or  bonds  are  then  necessary,  if  they  are  demanded. 

What  is  DELIVERY  DAY  ? 

A  term  known  in  grain  trading.  It  is  the  first 
business  or  trading  day  of  the  month.  However,  as 
all  sales  are  at  seller's  option,  he  may  deliver  the  grain 
on  any  day  of  the  month  for  which  it  has  been  sold, 
and  is  not  confined  to  delivery  day. 

What  is  a  DEMURRAGE  ? 

When  railroad  freight  cars  or  shipping  vessels  are 
detained  beyond  the  time  allowed  for  loading  or  dis- 
charging freight,  a  charge  for  this  loss  of  time  is 
made.  This  is  called  demurrage. 

What  is  meant  by  DIFFERENTIAL  ? 

It  relates  to  a  lower  rate  or  a  decrease  of  the  sched- 
uled price  which  railways,  having  a  common  tariff, 
allow  a  road  in  the  combine  to  make  in  order  to 
stimulate  traffic,  if  acceptable  to  Inter-State  Commerce 
Commission. 

What  is  a  DISCRETIONARY  ACCOUNT  ? 

Used  in  stock  speculation  and  signifies  an  account 
intrusted  to  the  discretion  of  the  broker  with  whom 
it  is  open.  Most  reputable  brokerage  houses  dislike 
discretionary  accounts  and  refuse  to  accept  them. 


52          THE    INVESTOR'S    CATECHISM 


What  is  a  DISCRETIONARY  POOL  ? 

A  powerful  pool  is  formed  sometimes  to  depress 
or  advance  a  certain  stock  or  stocks,  and  its  direction 
is  left  to  the  discretion  of  one  or  more  members  who 
represent  the  interests  of  all  the  members.  So-called 
discretionary  pools  have  at  times  been  formed  by 
unscrupulous  speculators  who,  working  on  the  weak 
minds  of  the  credulous,  have  obtained  money  from 
various  sources,  ostensibly  to  be  used  in  a  pool  and 
speculated  with  at  the  discretion  of  the  promoter  of 
the  pool.  Such  pools  should  be  avoided  by  the  public 
and  literature  received  from  any  so-called  firm,  out- 
lining a  discretionary  pool,  should  be  thrown  in  the 
waste  basket. 

What  is  DISCOUNT  ? 

Interest  allowed  for  advancing  money  on  negotiable 
securities  not  yet  due;  the  deduction  allowed  or 
counted  off  from  the  face  amount  of  the  securities, 
either  due  or  to  become  due,  at  the  time  money  is 
advanced  upon  them.  (2)  An  amount  deducted 
from  a  sum  owing  or  to  be  paid ;  anything  counted  off 
or  deducted,  as  a  discount  of  10  per  cent.  (3)  The 
act  of  discounting,  as  a  draft  deposited  for  discount ; 
or  the  rate  of  discount.  Notes  drawn  for  30,  60,  90 
days  at  a  given  rate  of  interest  are  frequently 
discounted. 

What  is  a  DIVIDEND  ? 

A  dividend  is  the  stockholders'  share  of  the  divisible 
profits  of  a  corporation,  usually  paid  to  him  in  cash 
at  certain  stated  periods.  Various  conditions  exist 
under  which  dividends  are  paid;  in  many  cases  they 


THE    INVESTOR'S     CATECHISM  53 


are  not  paid  in  cash.  A  "scrip"  dividend  is  one  payable 
in  scrip,  which  is  a  small  certificate  bearing  inter- 
est at  the  legal  rate,  usually  convertible  into  stock, 
but  carries  no  voting  power  or  dividend  until  con- 
verted into  stock.  A  stock  dividend  is  one  payable 
in  the  stock  of  the  company,  being  large  enough  to 
enable  the  holder  to  receive  a  full  certificate  and  not 
fractions  or  scrip.  Cash  dividends  are  usually  paid 
by  check  to  the  owner  of  the  stock,  in  whose  name 
the  certificate  stands.  If  the  owner  of  the  stock  has 
failed  to  have  his  certificate  transferred  to  his  name 
on  the  books  before  foreclosing,  the  dividend  is  paid 
to  the  former  owner,  who  must  in  time  pay  it  to  the 
new  owner.  A  speculator  who  is  short  of  a  stock  when 
a  dividend  becomes  due  is  obliged  to  pay  the  amount 
of  the  dividend  to  the  real  owner. 

What  are  ACCRUED  DIVIDENDS  ? 

If  a  6%  dividend  on  a  stock  is  payable  semi- 
annually  January  and  July  ist,  the  amount  of  accrued 
dividend  on  a  given  date,  such  as  April  ist,  will  be 
1//2%t  the  proportion  of  the  regular  dividend  which 
is  not  yet  due.  Cumulative  dividends  which  have 
not  been  paid  when  due,  but  have  accumulated,  are 
sometimes  called  accrued  dividends,  but  the  correct 
term  is  "accumulated  dividends."  A  cumulative 
dividend  is  not  an  accrued  dividend. 

What  are  ACCUMULATED    DIVIDENDS? 

They  are  cumulative  dividends  which  have  not 
been  paid  as  they  fell  due.  In  many  corporations, 


54          THE    INVESTOR'S    CATECHISM 

particularly  industrials,  there  are  issues  of  preferred 
stocks  on  which  the  dividend  charge  is  so  heavy  that 
the  corporation  is  not  able  to  earn  and  meet  the  pay- 
ments. The  amounts  of  dividends,  therefore,  have 
accumulated  and  ostensibly  should  be  paid  some  day. 
Usually  when  dividends  of  this  kind,  or  portions  of 
dividends,  have  accumulated  over  a  series  of  years 
and  there  is  little  prospect  of  the  corporation  being 
able  to  liquidate  the  back  payments,  some  plan  is 
submitted  to  the  stockholders  by  which  the  accumu- 
lations are  paid,  frequently  in  securities  of  some  sort, 
then  the  dividend  rate  is  reduced  for  the  future.  The 
cumulative  clause  in  a  stock  is  really  not  of  a  great 
deal  of  value  if  the  corporation  cannot  in  some  way 
earn  sufficient  money  to  pay  the  full  dividend. 

What  are  CUMULATIVE  DIVIDENDS  ? 
This  term  carries  the  same  meaning  as  accumula- 
tive dividends. 

What  is  an  EX-DIVIDEND  ? 

A  term  signifying  without  or  not  including  a  divi- 
dend. Dividends  on  stocks  are  generally  declared  pay- 
able on  a  certain  day  after  the  closing  of  transfer 
books.  It  may  be  five  days  or  any  other  number. 
During  this  period  the  stock  cannot  be  transferred 
from  one  name  to  another.  Therefore,  it  sells  at  a 
new  price,  usually  measured  by  the  amount  of  the 
dividend  declared,  on  which  the  books  have  closed. 
Unless  otherwise  arranged,  no  stock  transferred  while 
books  are  closed  will  carry  the  dividend,  as  it  goes 
to  the  owners  of  stock  of  record  prior  to  the  closing 
of  the  books. 


THE    INVESTOR'S    CATECHISM          55 


What  does  DOMICILIATED  mean  ? 

It  is  negotiable  paper  payable  in  a  place  other  than 
where  it  is  drawn  and  is  said  to  be  domiciliated  where 
payable. 

What  is  a  DRAWBACK  ? 

A  shipping  term  referring  to  rebates  given  by  rail- 
roads from  regular  freight  rates  to  favored  customers. 

What  is  a  DRIVE  ? 

It  is  an  attempt  to  force  prices  down.  "The  bears 
made  a  drive  at  the  market,"  is  a  familiar  expression. 

What  is  a  DROP  IN  THE  MARKET  ? 

The  equivalent  of  a  break,  though  a  drop  is  usually 
due  to  natural  causes,  and  is  not  so  extreme  as  a 
break. 

What  is  a  DUCK;  DEAD  DUCK;  LAME  DUCK  ? 

They  are  London  Stock  Exchange  phrases  seldom 
heard  in  Wall  Street.  A  "duck"  is  a  broker.  The 
"lame  duck"  is  a  broker  who  fails  to  meet  his  engage- 
ments, and  a  "dead  duck"  is  a  broker  who  is  down 
and  out,  past  all  recovery. 

What  is  EARLY  INFORMATION  ? 

"Early  information  and  a  big  bank  roll  will  'break' 
the  best  man  that  ever  came  to  Wall  Street,"  is  a 
saying  in  Wall  Street  that  is  a  classic. 


56          THE    INVESTOR'S    CATECHISM 

What  do  the  letters  E.  and  O.  E.  abbreviate  ? 
Errors  and  omissions  excepted. 

What  are  ENGAGEMENTS? 

It  refers  to  ocean  and  lake  vessels  chartered  for 
grain  transportation.  They  are  termed  engagements. 

What  is  an  EQUITY  ? 

Equity  in  a  property  is  the  difference  between  the 
selling  value  of  the  property  encumbered  and  the 
amount  of  the  obligation.  The  equity  in  a  loan  is 
the  difference  between  what  the  securities  pledged 
as  collateral  are  worth,  and  the  amount  borrowed  on 
them.  Securities  are,  as  a  rule,  accepted  by  financial 
banks  as  collateral  at  about  75%  of  their  market 
value.  The  difference,  of  course,  is  between  the  mar- 
ket value  of  the  securities  and  the  amount  of  equity. 

What  are  ESTIMATED  CAR  LOTS? 

Lots  that  are  expected  at  the  primary  grain  markets 
on  any  day  following  an  estimate. 

What  is  an  EXCHANGE  ? 

The  word  "exchange"  in  a  financial  sense  refers  to 
the  payment  of  an  obligation  in  one  city  by  the  trans- 
fer of  a  credit  from  another  city.  The  obligation  is 
discharged  without  the  direct  borrowing  of  money. 
The  exchange  itself  is  an  order  obtained  in  one  place 
for  the  payment  of  money  in  another  place.  There 


THE    INVESTOR'S    CATECHISM  57 

is  no  practical  difference  between  a  "bill  of  exchange" 
and  a  "draft."  The  term  "bill  of  exchange"  is  ordin- 
arily applied  to  an  order  for  money  payable  in  a 
foreign  country,  but  the  term  "draft"  is  used  to 
specify  an  order  for  domestic  use  or  payable  within 
the  country  of  its  origin.  Used  as  an  abbreviation 
of  Stock  Exchange. 

What  is  EXHAUST  PRICE? 

The  point  at  which  your  margins  are  exhausted  in 
a  short  sale,  and  the  point  at  which  your  broker  must 
close  or  sell  you  out ,  if  you  do  not  renew  your 
margins. 

What  are  EXPORTING  COUNTRIES? 

Grain  producing  countries  which  raise  more  wheat 
than  they  consume  and  sell  the  surplus  to  foreign 
countries.  The  United  States,  Argentina,  Russia, 
Hungary,  India,  Roumania,  and  Australia  are  the 
leading  exporting  grain  countries. 

What  is  the  meaning  of  EX-RIGHTS  ? 

A  stock  sold  "ex-rights"  conveys  the  buyer  no  privi- 
lege to  participate  in  any  right  that  recently  may 
have  been  granted  to  the  stockholders. 

What  is  the  meaning  of  EX-STORE  ? 

The  opposite  of  the  grain  term  "Free  on  Board."  It 
means  that  when  the  prices  quoted  are  "ex-store"  for 
goods  in  stock,  the  shipping  expenses  are  defrayed  by 
the  buyer. 


58  THE    INVESTOR'S     CATECHISM 


What  are  FANCY  STOCKS? 

They  are  new  stocks  quoted  at  fancy  or  high  figures. 
Stocks  that  are  notorious  for  manipulation  and  very 
speculative. 

What  is  the  FISCAL  YEAR? 

It  is  the  financial  year  of  a  corporation  business  or 
national  treasury,  at  the  end  of  which  the  accounts 
are  balanced.  In  the  United  States  the  "fiscal  year" 
closes  on  June  3Oth. 

Which  are  the  FIVE  PORTS? 

Boston,  New  York,  Philadelphia,  Baltimore  and 
New  Orleans. 

What  are  FIXED  CHARGES? 

In  a  railroad  report  they  are:  (i)  Interest  on 
funded  debt ;  (2)  interest  on  floating  debt ;  (3)  rentals ; 
(4)  taxes,  and  (5)  sinking  funds.  It  represents  the 
profits  of  the  corporation  after  all  prior  charges  have 
been  met,  all  expenses  paid,  and  its  maintenance 
sufficiently  provided.  Out  of  the  surplus  dividends 
are  paid  on  the  stocks  of  the  company.  There 
should  also  be  deducted  depreciation  not  covered  by 
operating  expenses,  such  as  depreciation  of  invest- 
ments held,  bad  debts,  etc.  What  remains  after  this 
is  done  becomes  "surplus,"  and  is  added  to  "profit 
and  loss"  or  "surplus  income  account."  One  that 
becomes  due  regularly  and  permanently  at  stated 
intervals. 


THE    INVESTOR'S     CATECHISM  59 


What  is  meant  by  FLAT? 

It  means  without  interest.  When  stock  is  borrowed 
by  bear  traders,  it  frequently  lends  "flat"  or  without 
interest.  The  rate  of  interest  is  regulated  by  the 
floating  supply  and  demand.  If  many  brokers  are 
carrying  a  certain  stock,  they  are  anxious  to  lend  it 
at  a  rate  of  interest  slightly  below  the  call  loan  rate. 
If,  however,,  many  traders  have  sold  a  stock  short, 
and  it  is  scarce,  the  bears  are  willing  to  borrow  it 
without  interest.  If  the  stock  is  cornered,  the  bears 
are  forced  to  pay  a  premium  for  it.  Bear  traders  are 
usually  paid  interest  on  the  stocks  they  borrow. 

What  is  a  FLOATING  DEBT  ? 

A  floating  debt  is  unfunded  indebtedness ;  indebted- 
ness not  represented  by  permanent  security.  Floating 
debts  of  railroads  or  corporations  consist  of  money 
directly  borrowed,  money  owed  for  miscellaneous 
purposes,  and  money  payable  within  a  short  period. 

It  is  the  general  unfunded  indebtedness  of  a  nation, 
State  or  corporation. 

What  is  a  FLURRY? 

It  is  a  sudden  and  big  decline  in  the  market  causing 
much  excitement. 

What  is  a  FLYER? 

It  is  the  speculative  purchase  or  sale  of  an  occa- 
sional lot  of  stock  or  grain  ostensibly  for  a  quick 
profit. 


6o          THE    INVESTOR'S    CATECHISM 

What  do  the  letters  F.  O.  B.  mean  ? 

Free  on  Board.  When  goods  are  purchased  it 
means  that  the  shipper  delivers  them  to  the  cars  or 
boat  with  no  charge  for  handling  or  cartage. 

What  is  the  meaning  of  FORCING  QUOTATIONS? 

When  brokers  wish  to  keep  the  price  of  a  stock  up, 
to  prevent  its  fading  out  of  sight,  quotations  are 
forced  by  small  sales  or  by  washing. 

What  is  FOREIGN  EXCHANGE  ? 

Foreign  Exchange  means  the  payment  of  an  obli- 
gation in  a  specific  point  in  one  country  by  the 
transfer  of  a  credit  from  a  specific  point  in  another 
country  with  a  bill  of  exchange  as  between  New  York 
and  London. 

A  New  York  dealer  usually  pays  for  goods  bought 
in  Paris  or  London  with  a  bill  of  exchange  or  draft 
purchased  from  a  bank  or  banker  in  New  York.  This 
is  payable  by  the  bank's  correspondent  in  London  or 
Paris.  It  is  payable  in  French  or  English  money  as 
required. 

Bills  payable  on  demand  or  sight  are  called  sight 
bills;  bills  payable  in  ten  to  thirty  days  are  called 
short  bills;  bills  payable  in  sixty  days  or  in  a  longer 
period  are  called  long  bills.  There  are  also  cable 
transfers  by  which  money  or  a  credit  may  be  trans- 
ferred by  cable,  usually  referred  to  as  cables.  Bills 
drawn  by  home  banks  or  bankers  against  their  cor- 
respondents or  credits  abroad,  are  called  bankers' 


THE    INVESTOR'S    CATECHISM          61 

bills.  They  include  letters  of  credit.  Bills  drawn 
against  shipments  of  commodities  or  manufactures 
are  called  commercial  bills.  Grain  bills  are  drawn 
against  grain  shipped,  and  cotton  bills  against  cotton 
shipped. 

What  are  FOREIGN  PORT  STOCKS? 

They  are  stocks  of  grain  in  warehouses  at  the 
leading  ports  of  Europe. 

What   are   FRACTIONAL   ORDERS   OR   LOTS? 

The  units  of  speculation  on  the  leading  stock 
exchanges  and  the  Chicago  Board  of  Trade,  are  100 
shares  of  stock  and  5,000  bushels  of  grain.  Orders 
for  smaller  amounts  are  called  fractional  lots. 

What  is  a  FRANCHISE  ? 

A  franchise  is  a  privilege  conferred  by  grant  from 
a  national,  state  or  municipal  government  to  a  cor- 
poration or  an  individual,  giving  the  right  to  construct 
a  railroad  from  one  point  to  another,  to  operate  the 
same  over  a  given  period  of  years,  constitutes  a  fran- 
chise. A  privilege  given  to  a  street  railway,  gas  or 
electric  light  company,  water  company  or  telephone 
company  to  operate  on  certain  streets  or  within 
certain  limits  for  a  given  period,  constitutes  a  fran- 
chise. Franchises  in  modern  times  are  very  largely 
capitalized. 

What  is  a  FREE  PORT? 

A  port  of  entry  where  cargoes  of  foods  can  be 
landed  free  of  customs  duties. 


6a  THE    INVESTOR'S     CATECHISM 

What  is   the  meaning  of  FROZEN   OUT? 

If  a  marginal  trader  is  sold  or  closed  out,  owing 
to  refusal  or  being  unable  to  put  up  more  margin,  he 
is  referred  to  as  "frozen  out." 

What  is  FUNDED  OR  FUNDING  ? 

When  floating  debts  are  converted  into  a  permanent 
loan  or  bonds,  payable  at  a  future  time  with  interest, 
they  are  said  to  be  funded. 

What  is  a  FUNDED  DEBT  ? 

The  "funded  debt"  of  'a  corporation  usually  is  one 
running  many  years  and  represents  one  or  more  issues 
of  bonds.  It  is  distinguished  from  the  "floating  debt" 
chiefly  by  its  relatively  permanent  character.  A 
floating  debt  may  represent  capital  which  has  been 
borrowed  for  permanent  uses,  but  a  "funded  debt"  is 
nearly  always  for  such  a  purpose.  "Funded  debt"  is 
applied  to  the  liabilities  of  the  British  government, 
such  as  have  been  issued  in  the  form  of  permanent 
long-dated  securities.  The  "floating  debt,"  which  is  in 
the  form  of  exchequer  bonds  and  treasury  bills  is 
regarded  as  temporary.  Such  a  distinction,  however, 
is  not  always  intelligent,  as  the  English  War  Loan 
issued  in  1900,  and  payable  in  1910,  is  classed  a 
floating  debt,  but  should  be  called  a  funded  debt. 

What  is  a  FUNDING  SYSTEM? 

A  system  of  public  finance  which  has  for  its  pur- 
pose converting  floating  indebtedness  into  a  funded 
debt. 


THE    INVESTOR'S     CATECHISM  63 

What  are  FUTURES  ? 

Almost  all  speculation  in  stock,  grain  and  cotton  is 
on  futures.  Men  who  buy  cash  grain  protect  them- 
selves against  loss  by  selling  a  specified  amount  for 
future  delivery  in  a  general  market.  Contracts  of 
this  kind  are  called  "futures/'  as  they  do  not  terminate 
until  a  future  month.  In  an  active  speculative  market 
these  futures  may  pass  through  many  hands  before 
they  expire. 

What  are  GENERAL  EXPENSES? 

In  railroad  reports  items  which  include  salaries  of 
general  officers,  clerks,  law  expenses,  insurance,  etc. ; 
they  are  usually  the  least  important  of  the  railroad 
operating  charges. 

What  is  meant  by  GIVE  UP? 

When  the  messenger  of  a  "$2"  or  "special"  broker, 
or  a  curb  broker  makes  a  comparison,  he  gives  up 
the  name  of  the  principal  who  will  receive  or  deliver 
the  stock  compared.  This  is  a  guarantee  of  good 
faith. 

What  are  GOLD  CERTIFICATES? 

Gold  certificates  are  not  legal  tender,  but  are 
received  for  all  public  dues.  They  are  issued  by  the 
Treasury  in  notes  of  $20  and  upward  against  gold 
coin  deposits.  Silver  certificates  are  issued  against 
silver  coin  deposits. 


64          THE    INVESTOR'S    CATECHISM 

What  are  the  GOULD  STOCKS? 

Missouri  Pacific,  Western  Union  Telegraph  and 
Texas  Pacific  are  the  chief  properties  in  which  the 
members  of  the  Gould  family  are  interested. 

What  are  GOVERNMENT  REPORTS? 

A  series  of  reports  issued  monthly  by  the  Depart- 
ment of  Agriculture.  They  tell  the  acreage,  condition 
and  yield  of  the  various  crops. 

What  are  GRANGER  RAILROADS  ? 

A  name  given  by  Wall  Street  to  western  railroad 
systems.  They  are  called  "granger  roads,"  because  of 
a  wide  agitation  years  ago  by  the  State  Granges.  The 
grange  agitation  was  of  national  interest  and  for  a 
long  time  affected  the  position  and  earnings  of  the 
Burlington,  St.  Paul,  Northwestern,  Rock  Island,  and 
Chicago  &  Alton,  etc.  From  this  they  came  to  be 
known  as  "granger  roads." 

What  are  GUARANTEED  STOCKS  ? 

Stocks  of  roads  leased  to  other  roads  frequently 
have  their  dividends  guaranteed  by  the  lessee. 

What  is  GUNNING  A  STOCK? 
To  use  every  artifice  to  produce  a  "break"  when  it 
is  known  that  a  certain  house  is  heavily  supplied  with 
certain  stock  or  stocks  and  would  be  unable  to  resist 
an  attack;  any  effort  made  to  force  longs  to  sell  or 
shorts  to  buy. 


THE    INVESTOR'S     CATECHISM  65 

What  is  the  meaning  of  A  HARD  SPOT? 

A  strong  stock  or  stocks  featured  in  the  market, 
holding  up  unusually  well,  despite  a  weak  or  heavy 
market  in  respect  to  the  remainder  of  the  list. 

What  is  a  HECTOLITRE? 

One  hectolitre  equals  2.83  bushels,  or  the  unit  of 
grain  measurement  in  France. 

What  is   HEDGING? 

To  lessen  one's  line  of  stock  in  order  to  minimize 
a  loss  is  termed  hedging. 

What  is  meant  by  a  HOLDING  COMPANY  ? 

It  means  the  same  as  a  security  company.  For  in- 
stance, a  corporation  which  owns  the  securities  of 
other  companies  or  corporations,  depending  for  its  in- 
come on  the  interest  and  dividends  from  such.  The 
most  noted  of  holding  companies  in  railroad  circles 
was  the  Northern  Securities  Co.,  dissolved  as  being 
illegal  by  the  United  States  Courts.  It  planned  to  hold 
the  stocks  of  Great  Northern  and  Northern  Pacific 
Railroad  Companies,  and  probably  other  companies.  A 
holding  company  is  sometimes  an  operating  company. 
The  Pennsylvania  Railroad,  the  New  York  Central 
Railroad,  the  New  Haven,  Union  Pacific,  Baltimore 
&  Ohio,  Illinois  Central,  etc.,  are  both  holding  and 
operating  companies. 


66          THE    INVESTOR'S    CATECHISM 

What  is  HONEYCOMBED  WITH  STOP 
ORDERS  ? 

A  market  which  contains  many  stop  loss  orders 
placed  by  marginal  traders,  a  dangerous  position  for 
those  who  have  placed  them. 

What  does  HOLDING  THE  MARKET  mean? 

Moderate  purchases  that  are  skilfully  distributed 
for  the  purpose  of  keeping  a  market  from  declining. 

What  is  meant  by  HYPOTHECATION  ? 

The  pledging  of  securities  or  other  possessions  as 
collateral  for  loans.  When  securities  are  pledged  for 
a  loan  the  title  to  them  for  the  time  being  is  held  by 
the  bank,  or  lender  making  the  loan.  The  London 
Stock  Exchange  stock  classes  securities  pledged  as 
collateral  as  "pawned." 

What  is  "I  HEAR,"  "I  UNDERSTAND,"  "THEY 

SAY"  ? 

They  are  favorite  expressions  among  Wall  Street 
tipsters  who  never  say  "I  know"  that  such  and  such 
a  thing  will  happen,  but  preface  their  tips,  points  and 
advice  with  "I  hear,"  "I  understand,"  or  "They  say." 
The  qualification  gives  them  a  loophole  for  escaping 
responsibility,  and  the  air  of  secrecy  preserved 
suggests  that  the  tipster  has  some  inside  information. 


THE    INVESTOR'S     CATECHISM  67 

Which  are  IMPORTING  COUNTRIES? 

The  leading  grain  and  food  stuff  importing  countries 
are  Great  Britain,  France,  Germany,  Italy,  Holland, 
Belgium,  Spain,  Brazil,  West  Indies,  China  and  Japan. 

What  is  an  INCOME  ACCOUNT  ? 

It  is  a  revenue  account,  and  with  most  corporations 
it  includes  such  items  as  gross  earnings,  operating 
expenses,  net  earnings,  income  from  other  sources, 
fixed  charges  and  other  deductions  for  dividends, 
dividend  charges  and  surplus. 

What  is  an  INCOME  BASIS  ? 

The  income  basis  of  an  investment  is  the  percentage 
of  return  on  the  prevailing  price.  A  stock  paying 
6%  on  par  of  100,  bought  at  no,  yields  55-11; 
therefore,  this  stock  at  no  is  on  a  5  5-11  "income  basis." 

What  is  an  INCOME  BOND  ? 

A  bond  supposed  to  be  a  lien  on  the  net  income  or 
earnings  of  a  corporation  after  all  prior  charges  have 
been  paid.  It  receives  interest  only  when  earned,  and 
is  similar  in  its  position  to  a  preferred  stock,  except 
that  a  preferred  stock  usually  has  voting  power.  An 
"income  bond"  is  not  necessarily  a  mortgage,  but  when 
it  is,  cannot  be  foreclosed  before  maturity,  provided 
the  interest  payments  on  earnings  are  complied  with. 

What  are  INDUSTRIALS? 

American  Sugar  Refining,  Federal  Steel,  American 
Steel  and  Wire,  Standard  Oil,  American  Tobacco, 


68          THE    INVESTOR'S    CATECHISM 

National  Starch,  Cordage,  Rubber,  Linseed  Oil  and 
other  similar,  listed  securities  are  known  as  the 
industrials. 

What  is  an  INSIDER? 

One  who  owns  the  controlling  interest  of  a  stock 
in  a  railroad  or  industrial  company  and  shapes  the 
course  of  prices. 

What  is  IN  SIGHT  ? 

It  is  a  term  applied  to  grain,  cotton  and  coffee,  etc., 
available  for  immediate  use. 

What  is  an  INSPECTION  ? 

In  Chicago,  grain  shipped  in  is  inspected  and  graded 
by  sworn  inspectors  under  the  rules  of  the  Board  of 
Railroad  and  Warehouse  Commissioners.  If  the 
inspections  are  not  satisfactory,  appeals  may  be  taken 
to  the  Board  of  Trade's  Inspection  Committee. 

What  is  INTEREST  ? 

Interest  is  the  usury  demanded  for  loans  made.  It 
is  regulated  by  law  in  most  States,  but  fluctuates 
according  to  the  demand  for  money.  In  Wall  Street 
financial  banks,  interest  on  call  loans  sometimes  runs 
very  high.  Such  transactions  are  not  recognized  by 
commercial  banks  and  institutions,  dealing  with  purely 
commercial  or  industrial  houses  or  corporations. 

What  is  the  meaning  of  EX-INTEREST  ? 

Without  or  not  including  interest,  and  usually 
applies  to  bonds.  Registered  bonds  sell  "ex-interest" 


THE    INVESTOR'S    CATECHISM          69 

in  the  same  way  that  stocks  sell  "ex-dividend"  when 
the  books  are  closed.  In  the  case  of  coupon  bonds  the 
term  "ex-coupon"  is  used  in  the  same  sense.  In  coupon 
bonds  no  books  are  closed.  The  bonds  sell  "ex-coupon" 
from  the  day  that  the  coupon  is  paid. 

What  is  ACCRUED  INTEREST  ? 

The  amount  of  interest  on  a  bond  or  debenture 
stock  which  is  not  yet  payable,  but  has  accrued  over 
a  given  period  of  time  beyond  the  last  regular  pay- 
ment. If  the  interest  on  a  4%  bond  is  payable 
semi-annually,  January  and  July  1st,  the  amount  of 
accrued  interest  on  the  bond  on  April  ist,  the  first 
quarter,  would  be  exactly  i%t  and  would  amount  to 
$10  on  a  $1,000  bond.  Many  bonds  are  quoted  "with 
accrued  interest"  and  sold  on  this  basis,  particularly 
unlisted  issues,  municipal  bonds,  etc.  Most  of  the 
issues  quoted  on  the  stock  exchanges  are  sold  "flat;" 
in  other  words,  the  accrued  interest  is  not  separately 
figured  but  is  included  in  the  price. 

What  is  INVESTMENT  BUYING  ? 

Buying  by  persons  who  intend  to  hold  their  pur- 
chases for  a  long  time,  ordinarily  purchased  for  the 
dividend  returns  or  to  secure  control  of  a  security. 

What  is  INVISIBLE  SUPPLY  ? 

Grain  not  included  in  the  official  statement  of  visible 
supply,  remaining  in  the  farm  or  private  granaries. 


7Q          THE    INVESTOR'S    CATECHISM 

What  is  an  INVOICE  ? 

A  statement  or  account  furnished  by  the  shipper  of 
goods  to  the  receiver. 

What  are  IRISH  DIVIDENDS  ? 

An  assessment  on  stock  is  known  as  an  "Irish 
Dividend,"  by  jokers.  It  is  a  traditional  facetiousness. 

What  is  an  IRREDEEMABLE  BOND  ? 

A  continual  bond  which  cannot  be  redeemed  or 
paid  off,  the  interest  goes  on  forever.  Such  issues 
have  been  made  by  European  governments  and 
municipalities,  but  they  are  very  rare  in  this  country. 

What  does  IRREGULAR  mean  ? 

If  one  group  of  stocks  advances  and  another  declines 
at  the  same  time,  the  market  is  technically  described 
as  "irregular." 

What  does  JETTISON  mean  ? 

When  a  ship  at  sea  is  in  danger  sometimes  it  is 
necessary  to  relieve  the  vessel  of  part  of  her  cargo. 
When  the  cargo  is  thrown  overboard  it  is  said  to  be 
"jettisoned." 

What  are  JOBBERS  ? 

A  term  not  much  used  in  Wall  Street,  but  well 
known  on  London  'change,  where  a  "jobber"  is 
equivalent  to  an  "operator." 


THE    INVESTOR'S    CATECHISM          ?i 

What  is  a  JOINT  BOND  ? 

A  bond,  the  payment  of  the  principal  and  interest 
of  which  is  assumed  by  two  or  more  parties  or  cor- 
porations jointly  bound.  Such  issues  are  frequent 
among  railroad  bonds. 

What  are  KAFFIRS  ? 

The  London  Stock  Exchange  name  for  all  shares 
of  South  African  mining,  land,  industrial  and  other 
companies. 

What  is  meant  by  KANGAROOS  ? 

The  London  Stock  Exchange  name  for  shares  of 
all  West  Australian  mining,  land,  industrial  and  other 
companies. 

What  is  a  KILO  ? 

It  is  the  unit  of  measurement  employed  by  Germany 
and  Belgium ;  100  kilos  are  equal  to  3.67  bushels. 

What  is  KITE-FLYING  ? 

It  is  expanding  one's  credit  beyond  safe  limits. 

What  is  meant  by  the  term  KITING  ? 

Kiting,  simply  stated,  is  making  a  fresh  obliga- 
tion to  pay  a  prior  one.  The  commonest  form  is  by 
checks.  A  depositor  in  a  bank  may  issue  a  check 
exceeding  his  balance.  He  makes  out  another  check, 
gets  it  cashed  at  another  bank  or  by  some  friend,  and 
deposits  the  cash  in  his  bank  in  time  to  meet  the  first 


1*    THE  INVESTOR'S  CATECHISM 

check.  Sometimes  two  or  three  days  elapse  before 
his  second  check  reaches  his  bank,  during  which  time 
he  makes  another  check,  cashes  it,  and  deposits  the 
money  in  his  own  bank,  etc. 

A  person  engaged  in  "kiting"  may  arrange  to  ex- 
change checks  with  one  or  more  persons  having  ac- 
counts in  different  banks  or  living  in  different  cities, 
and  thus  enlarge  the  circle  of  his  operations. 

What  is  a  £  ? 

An  English  pound  sterling  is  equivalent  to  $4.86j4 
in  our  money. 

What  is  a  LAMB  ? 

A  novice  in  Wall  Street.  The  general  speculative 
public  are  lambs. 

What  is  a  LEGAL  TENDER  ? 

The  medium  of  exchange  designated  and  legalized 
by  law  for  the  payment  of  debts;  current  funds. 
Money  stamped  and  guaranteed  by  the  government. 

What  is  a  LIEN  ? 

It  is  a  legal  claim  on  property  as  security  for  a 
debt.  A  bond  of  any  kind  carrying  possession  or 
control. 

What  is  a  LIMIT  ? 

To  limit  a  trader's  profits  or  losses,  a  limit  price 
below  or  above  the  purchase  or  selling  price  is  made 
at  which  to  close  a  transaction. 


THE    INVESTOR'S    CATECHISM  73 


What  are  LIMITED  CORPORATIONS  ? 

Corporations  in  certain  States  of  this  country  and 
abroad  at  times  employ  the  word  Limited,  to  signify 
that  their  stockholders  are  exempted  from  personal 
liability  under  the  law  which  makes  such  provision. 
"Limited"  corporations  are  more  common  in  England 
than  in  this  country. 

What  is  a  LIQUIDATING  MARKET  ? 

When  a  market  declines  from  forced  sales  by 
holders  of  stock,  it  is  called  liquidation.  It  is  usually 
attributable  to  excessive  speculation.  A  "liquidating 
market"  might  be  accompanied  by  rising  prices  due  to 
the  purchase  of  short  stock,  but  such  a  condition 
would  be  unusual  and  the  term  is  accepted  as  refer- 
ring to  a  declining  market  which  results  in  the 
establishment  of  new  low  price  levels. 

What  are  LISTED  STOCKS  ? 

Stocks  which  have  been  included  in  the  regular  list 
of  some  stock  exchange  being  admitted  to  dealings 
on  the  exchanges.  In  the  New  York  Stock  Exchange 
there  are  two  classes  of  stocks,  listed  and  unlisted  se- 
curities. Certain  rules  must  be  complied  with  by  the 
company  making  the  application  before  a  stock  can  be 
listed.  These  rules  bear  particularly  on  the  financial 
statement  submitted.  Unlisted  securities  are  not 
obliged  to  submit  details  regarding  their  earnings  or 
financial  condition.  The  method  of  dealings  on  the 
floor  of  the  exchange  does  not  materially  differ  between 
listed  and  unlisted  securities. 


?4          TH£    INVESTOR'S    CATECHISM 

How  do  LISTED  and  UNLISTED  STOCKS  differ  ? 
On  stock  exchanges  securities  are  divided  into 
listed  and  unlisted  stocks.  The  company  having 
listed  stock  is  required  to  furnish  a  balance  sheet  and 
full  information,  particularly  regarding  new  issues  of 
stock  and  bonds.  Unlisted  stocks  may  be  dealt  in  if 
a  broker  requests  that  dealings  in  a  certain  stock  be 
allowed  among  the  unlisted  shares.  Such  a  petition 
is  usually  granted,  and  the  exchange  does  not  con- 
cern itself  with  the  company's  financial  affairs  other 
than  obtaining  formal  statements  of  the  outstanding 
stock  and  bonds. 

What  are  LLOYDS  ? 

An  association  of  English  underwriters  of  marine 
insurance  for  the  collection  and  distribution  of  mari- 
time intelligence  and  the  protection  of  their  common 
interests  and  credit.  The  corporation  requires  from 
each  firm  of  underwriters  security  to  meet  its  obliga- 
tions, and  prints  Lloyds'  lists  and  other  publications 
compiled  from  the  reports  of  its  agents  in  all  parts  of 
the  world. 

Various  forms  of  insurance  are  written  by  Lloyds, 
particularly  on  the  lives  of  noted  men.  Before  any 
great  event  the  public  are  allowed  to  take  out  policies 
on  the  lives  of  jeopordized  persons. 

What  is  LLOYDS  REGISTER  ? 

It  is  a  list  of  sea-going  vessels  of  all  nations  classi- 
fied according  to  seaworthiness  by  a  British  association 
of  shipowners,  shippers  and  underwriters.  An  Inspec- 
tion of  hulls,  engines,  etc.,  is  maintained  by  them. 


THE    INVESTOR'S    CATECHISM  75 

What  is  a  LOAD  ? 

To  "load"  one's  self  with  stock  is  to  buy  very 
heavily,  almost  if  not  quite  to  the  point  of  danger. 

What  are  LOCAL  TRANSPORTATIONS  ? 

Metropolitan-Interborough,  Manhattan,  Third  Ave- 
nue and  Brooklyn  Rapid  Transit,  are  known  on  the 
New  York  Stock  Exchange  as  the  local  transportation 
groups. 

What  is  a  LONG  ACCOUNT  ? 

It  designates  a  stock  or  other  account  on  the 
broker's  ledger  showing  one  or  more  purchases  made 
and  held  for  a  rise  in  the  price  of  the  security  pur- 
chased. A  "short  account"  is  just  the  reverse, 
designating  as  sold  "short." 

What  is  a  LONG  INTEREST  ? 

The  total  amount  of  stocks  held  by  investment  and 
margin  purchasers,  to  wait  for  a  rising  market. 

What  is  a  LONG  MARKET  ? 

It  is  an  overbought  market,  when  the  buying  con- 
tracts for  future  delivery  exceed  the  probable  demand. 

What  are  LONDON  QUOTATIONS  ? 

London  and  New  York  prices  sometimes  differ 
considerably.  Under  ordinary  conditions  the  loss  of 
interest  on  the  money  or  stocks  when  in  transit  and 
cost  of  exchange  would  represent  the  difference.  The 
quotations  in  each  city  are  consequently  specified. 


76          THE    INVESTOR'S    CATECHISM 

What  is  MAINTENANCE  OF  EQUIPMENT  ? 

An  item  in  a  railroad  report  specifying  charges 
necessary  to  keep  all  the  company's  rolling  stock, 
marine  equipment  and  repair  shops  in  good  condition. 

What  is  MAINTENANCE  OF  WAY  AND 
STRUCTURES  ? 

An  important  item  of  railroad  operating  expenses, 
including  all  charges  of  maintaining  the  permanent 
way  and  structures  of  the  road  in  good  condition. 

What  is  the  meaning  of  MANIPULATION  ? 

A  term  applied  in  speculation  to  the  various  opera- 
tions employed  in  moving  quotations  up  or  down  in 
the  market.  Various  methods  are  employed  for 
affecting  the  prices  of  securities,  such  as  dissemina- 
tion of  reports,  sometimes  true  and  sometimes  false, 
to  affect  the  prices  of  particular  stocks ;  circulation 
of  rumors,  coloring  of  news  or  suppression  of  facts. 
In  Wall  Street  these  rumors  are  often  most  potent 
in  affecting  stock  quotations.  There  are  more  posi- 
tive ways  of  manipulating  prices,  such  as  by  "wash 
sales."  "Washing"  consists  of  buying  and  selling  a 
security  at  the  same  price  and  time.  The  operator 
desires  to  advance  a  stock  in  price,  so  gives  to  one 
broker  an  order  to  bid  the  stock  up;  that  is,  the 
broker  is  instructed  to  offer  to  buy  a  certain  amount 
of  stock,  bidding  for  each  lot  ^  of  one  per  cent,  above 
the  last  price  paid.  At  the  same  time,  the  opera- 
tor gives  another  broker  an  order  to  sell  the  same 


THE    INVESTOR'S     CATECHISM  77 

amount  of  stock  at  similar  prices.  The  operator  raises 
the  price  of  the  stock  without  actually  buying  any- 
thing. If  the  operator  desires  to  depress  the  price 
of  a  stock,  similar,  but  reversed  methods  are  em- 
ployed. Pools  are  frequently  formed  in  Wall  Street 
to  manipulate  stocks. 

What  is  a  MARGIN  ? 

Money  deposited  with  a  broker  by  a  customer  to 
buy  securities.  It  is  really  a  payment  down  on  the 
cost  of  the  securities  to  secure  the  broker  against  loss. 
The  amount  of  margin  required  by  a  broker  varies 
from  5%  to  20%  of  the  par  value,  according  to  the 
kind  of  security  dealt  in,  or  the  character  of  trading 
done.  The  average  margin  is  about  10%. 

Stocks  or  bonds  bought  on  margin  by  a  broker  for 
a  customer,  in  the  absence  of  an  agreement  to  the 
contrary,  are  subject  to  the  order  of  the  customer.  A 
customer  has  the  right  to  demand  delivery  of  the 
securities  at  any  time  on  payment  of  the  balance  due 
on  them,  including  commissions  and  interest  on  other 
proper  expenses  or  charges.  Unless  there  is  a  specific 
agreement  to  the  contrary,  the  broker  may,  at  any 
time,  on  giving  formal  notice,  require  the  customer 
to  "take  up"  and  pay  in  full  for  the  stocks  or  other 
securities  which  are  being  carried.  If  the  customer  be 
short  of  stocks,  the  broker  may  demand  that  he  buy 
the  stocks  or  close  his  account. 

What  is  the  value  of  a  MARK  ? 
A  German  coin  of  the  value  of  23.8  cents. 


78  THE     INVESTOR'S     CATECHISM 

What  is  meant  by  MARKET  IS  OFF  ? 

Any  decline  from  former  quotations. 

What  is  a  MATCHED  ORDER  ? 

A  Wall  Street  term,  meaning  an  order  to  buy  and 
sell  the  same  stock;  such  an  order  is  usually  em- 
ployed for  the  purpose  of  artificially  raising  or 
lowering  the  price  of  a  stock. 

What  is  a  MERGER  ? 

The  joining  by  operation  of  law  of  a  lesser  estate, 
right  or  liability  with  a  greater  one,  as  where  a  lower 
is  replaced  by  a  higher  form  of  security,  or  a  smaller 
company  is  merged  with  a  larger  one. 

What  is  meant  by  MILEAGE  ? 

Length  or  distance  in  miles.  The  mileage  of  a 
railroad  is  the  length  in  miles  of  the  railroad  itself. 
Track  mileage  is  the  length  in  miles  of  the  tracks  of 
the  railroad,  each  mile  of  double  track  counted  as  two 
miles;  side  track  and  switching  tracks  also  are 
counted  and  included  in  mileage. 

Train  mileage  is  the  number  of  miles  traversed  by 
a  particular  train,  or  the  number  of  miles,  collectively 
traversed  by  all  trains  of  a  railroad. 

Car  mileage  is  the  number  of  miles  traversed  by 
a  particular  car,  or  the  number  of  miles,  collectively, 
traversed  by  all  cars. 

Ton  mileage  is  figured  from  the  number  of  miles 
the  whole  number  of  tons  are  hauled.  The  average 


THE    INVESTOR'S    CATECHISM          79 

number  of  miles  each  ton  is  transported  is  ascertained 
by  adding  together  the  number  of  miles  each  ton  is 
hauled  and  then  dividing  by  the  number  of  tons. 

Passenger  mileage  means  the  number  of  miles, 
collectively,  traveled  by  all  passengers.  The  number 
of  miles  traveled  by  all  passengers,  divided  by  the 
number  of  passengers,  shows  the  average  number  of 
miles  traveled  by  each  passenger. 

What  is  MILKING  THE  STREET  ? 

Cliques  of  great  operators  who  hold  certain  stocks 
and  bonds  so  well  in  hand  that  they  cause  any  fluctu- 
ations they  please  in  the  market,  are  said  to  be  "milk- 
ing the  Street."  By  alternately  lifting  and  depressing 
shares  they  take  all  the  floating  money  in  the  market, 
in  other  words,  milk  it  dry. 

What  is  a  MIXED  LOAN  ? 

A  loan  secured  by  various  collateral,  such  as  rail- 
road stocks;  industrial  stocks,  or  other  securities, 
instead  of  one  particular  stock. 

What  is  meant  by  the  term  MONETARY  ? 

It  pertains  to  money  or  finance;  used  in  terms  of 
financial  or  pecuniary,  as  monetary  convention, 
monetary  union,  etc. 

What  is  a  MONETARY  STANDARD  ? 

It  means  the  standard  of  value  established  by  law 
as  a  basis  for  the  money  of  a  country.  Gold  and 


8o  THE    INVESTOR'S    CATECHISM 

silver  are  the  accepted  standard  to  the  exclusion  of 
everything  else,  and  the  monetary  systems  of  the 
world  are  based  on  one  or  the  other  or  both  together. 
Gold  is  inevitably  becoming  the  universal  standard. 
Great  Britain  first  adopted  the  gold  standard  in 
1816,  and  gradually  the  nations  have  fallen  into  line, 
the  United  States  not  until  1900,  leaving  the  Latin 
countries  as  the  most  important  representatives  of 
the  double  standard.  The  use  of  silver  is  practically 
confined  to  the  Far  East,  to  Mexico,  and  some  parts 
of  Central  and  South  America. 

What  is  a  MONEY  BROKER  ? 

A  dealer  in  coin  and  paper  money,  in  foreign  money, 
and  one  who  borrows  and  lends  money  for  others. 

The  regular  commission  of  a  money  broker  for 
negotiating  a  time  loan  (a  loan  for  a  specified  time) 
is  1-32  of  i%  of  the  amount  borrowed;  the 
commission  is  to  be  paid  by  the  borrower. 

A  "money  broker"  usually  receives  nothing  from  the 
borrower  or  the  lender  for  effecting  a  call  loan.  The 
reason  is  that  a  call  loan  may  continue  for  a  day  only. 
The  broker  uses  the  free  negotiation  of  call  loans  to 
bring  business  to  him. 

What  is  the  MONEY  MARKET  ? 

A  term  applied  to  the  business  and  not  to  the  place 
of  lending  money. 

In  this  country  banks,  trust  companies  and  insur- 
ance companies  are  the  chief  lenders  of  money,  but 
there  are  other  corporations  and  not  a  few  firms  and 
individuals  who  are  also  lenders. 


THE    INVESTOR'S    CATECHISM          81 

What  are  MONEY  RATES  ? 

The  term  means  the  rates  of  interest  at  which 
money  is  lending.  There  are  different  rates  for  call 
money  and  time  money  (on  time,  that  is,  loaned  for  a 
specified  period).  The  rates  for  call  money  are 
usually  lower  than  those  for  time  money. 

What  is  meant  by  MONOMETALISM  ? 
When  the  currency  of  the  country  is  based  on  a 
single   metal,   as    either   gold   or   silver,   it   is   called 
"monometalism." 

What  is  a  MORTGAGEE  ? 

The  grantee  under  the  mortgage;  the  one  to  whom 
the  mortgage  is  executed,  the  mortgager  makes  the 
mortgage  payable  to  the  mortgagee. 

What  is  a  MOVABLE  EXCHANGE  ? 

If  foreign  exchange  is  quoted  and  payable  in  the 
money  of  the  country  where  collection  is  to  be  made, 
it  is  called  "movable  exchange."  Illustration:  Ex- 
change on  London  is  quoted  in  pounds  in  New  York 
and  is  therefore  movable  exchange.  The  dollar  is 
the  basis  and  the  pound  fluctuates  instead  of  the 
dollar  in  which  it  is  reckoned.  "Fixed  exchange"  is 
the  opposite  of  "movable  exchange." 

What  is  the  NATIONAL  DEBT  ? 

National  or  public  debt  means  the  same;  the  debt 
of  a  nation. 

The  National  debt  of  the  United  States  consists  of 
bonds,  United  States  notes,  notes  issued  prior  to 


82          THE    INVESTOR'S    CATECHISM 

the  present  United  States  notes,  national  banks'  notes 
for  the  redemption  of  which,  money  has  been  deposited 
by  the  banks,  fractional  currency,  gold  certificates, 
silver  certificates  and  Treasury  notes. 

What  is  meant  by  the  term  NET  ? 

Free  of  all  charges  or  deductions  such  as  actual 
profit  or  actual  loss.  The  net  earnings  of  a  stock 
company  are  the  earnings  left  after  deducting  all 
expenses. 

How  do  NET  EARNINGS  and  NET  PROFITS 
DIFFER  ? 

These  terms  are  frequently,  but  wrongly  used 
synonymously.  When  all  operating  expenses  are  de- 
ducted from  gross  earnings  the  remainder  is  termed 
Net  Earnings.  In  banking,  however,  losses  frequently 
occur  on  loans,  no  matter  how  conservative  a  bank 
may  be.  Such  losses  deducted  from  the  "net  earnings" 
leave  a  balance  which  is  called  "net  profits."  Even  in 
the  National  Bank  Act,  the  term  "net  profits"  is  used 
referring  to  the  profits  before  losses  have  been 
deducted. 

What  is  the  NEW  YORK  CLEARING  HOUSE  ? 

The  official  title  of  the  organization  under  which 
the  associated  banks  of  New  York  conduct  daily 
clearings. 

It  was  organized  in  September  13,  1853,  and  clear- 
ings were  begun  on  October  nth.  The  association 
now  owns  and  operates  in  its  own  building. 


THE    INVESTOR'S     CATECHISM  83 


What  is  the  NEW  YORK  STOCK  EXCHANGE  ? 

The  New  York  Stock  Exchange  is  unincorporated. 
It  is  not  a  corporation,  neither  is  it  a  partnership.  It 
exists  under  a  written  constitution  and  by-laws. 
Neither  the  constitution  of  the  New  York  Stock 
Exchange;  nor  the  rules  and  regulations  of  the  Lon- 
don Stock  Exchange,  state  in  specific  terms  the 
object  of  organization. 

The  New  York  Stock  Exchange  originated  in  an 
agreement  dated  May  17,  1792,  by  "Brokers  for  the 
Purchase  and  Sale  of  Public  Stock." 

By  public  stock  was  meant  government  securities 
or  government  bonds.  At  that  time  the  brokers  met 
and  did  business  under  a  buttonwood  tree  that  stood 
in  front  of  the  dividing  line  between  the  present  Nos. 
68  and  70  Wall  Street.  In  1817  a  constitution  was 
adopted  under  the  name  "New  York  Stock  and  Ex- 
change Board."  On  January  29,  1863,  the  present 
name,  "New  York  Stock  Exchange,"  was  adopted. 

The  membership  of  the  New  York  Stock  Exchange 
is  limited  to  1,100.  The  admission  fee  is  $2,000,  but 
this  is  in  addition  to  the  cost  of  membership  itself, 
which  depends  on  the  "condition  of  the  market,"  for 
seats,  as  memberships  are  termed.  Nowadays  a 
membership  is  obtained  by  buying  the  seat  of  a  retir- 
ing, deceased  or  expelled  member.  A  member  is 
elected  for  life  or  until  he  resigns  or  is  expelled. 

Expulsion  from  the  exchange  forfeits  membership, 
but  not  the  proceeds  of  it.  Temporary  insolvency 
involves  suspension.  Permanent  insolvency  in- 
volves loss  of  membership,  and  the  proceeds  of  the 


THE    INVESTOR'S    CATECHISM 


membership  are  applied  to  the  payment  of  the  claims 
of  creditors  who  are  members  of  the  exchange.  If 
there  is  a  surplus,  it  goes  to  the  member,  or  if  he  has 
been  declared  a  bankrupt,  to  his  assignee. 

What  is  the  meaning  of  NOMINAL  ? 

In  name  only,  as  nominal  values  are  the  named 
but  not  the  intrinsic  values. 

What  are  NON-ASSENTED  STOCKS  and  BONDS  ? 

They  are  stocks  and  bonds  which  the  owners  refuse 
to  deposit  under  any  agreement  by  which  their 
position  may  be  changed. 

What  is  COMMON  OR  GENERAL  STOCK  ? 

In  Great  Britain  when  an  ordinary  or  common  stock 
has  been  divided  into  two  classes,  one  nominated  as 
preferred,  receives  no  dividend  until  the  other  called 
preferred  has  received  a  dividend.  The  deferred  stock 
is  called  A  stock  and  the  preferred,  B  stock. 

B,  or  preferred  stock,  is  not  the  same  as  preferred 
stock  in  the  United  States.  The  United  States  pre- 
ferred stock  is  called  preference  stock  in  England, 
and  preference  stock  is  sometimes  divided  into  two 
or  more  classes,  called  first  preference,  second  prefer- 
ence, etc.  In  the  United  States  we  class  as  first  pre- 
ferred, second  preferred,  etc.  When  there  is  only  one 
class  of  preference  stock  ahead  of  an  ordinary  stock 
in  England,  the  B,  or  preferred  stock,  is  equivalent  to 
second  preferred  stock  in  the  United  States. 


THE    INVESTOR'S    CATECHISM  85 


What  is  NON-ASSESSABLE  STOCK  ? 

A  stock  that  cannot  be  assessed.  Ordinarily  nowa- 
days, stocks  are  issued  in  non-assessable  form. 

What  is  NON-CUMULATIVE  STOCK  ? 

It  is  stock  on  which  dividends,  if  not  paid,  do  not 
accumulate.  If  dividends  are  not  paid  for  a  period 
subsequently  they  can  be  paid  without  reference  to 
the  period  when  they  were  not  declared. 

What  is  meant  by  NON-INTEREST   BEARING  ? 

Bearing  or  paying  no  interest.  Money  issued  by 
the  United  States  government  is  a  non-interest-bear- 
ing obligation ;  the  government  pays  no  interest  on  it. 
Bonds  issued  by  the  United  States  government,  since 
the  government  pays  interest  on  them,  are  interest- 
bearing  obligations. 

What  is  a  NOTE  BROKER  ? 

One  who  negotiates  the  sale  of  promissory  notes. 
A  note  broker  differs  from  a  money  broker.  The 
commission  of  a  note  broker  is  generally  J^  or  ^4  of 
1%  of  the  amount  for  handling  the  paper.  It  is  paid 
by  the  one  for  whom  the  broker  sells  the  paper.  The 
buyer  pays  no  commission. 

What  are  ODD  LOTS  ? 

Any  number  under  100.  Usually  if  you  purchase 
odd  lots  of  stocks  you  have  to  pay  on  the  Stock 


66          THE    INVESTOR'S    CATECHISM 

Exchange  ^  to  ^  per  cent,  more  than  for  a  100- 
share  lot,  and  when  you  sell  you  have  to  make  a 
corresponding  concession. 

What  is  the  meaning  of  ON  A  SCALE  ? 

Used  in  speculative  operations  in  stocks,  meaning 
buying  or  selling  at  stated  intervals,  as  prices  decline 
or  advance. 

What  is  an  OPTION  ? 

Buying  or  selling  prope'rty  to  be  received  or  de- 
livered by  the  buyer  or  seller  in  accordance  with  the 
terms  of  agreement. 

In  speculation,  an  "option"  is  paying  for  the  privilege 
of  either  receiving  or  delivering  a  specific  amount  of 
a  security  at  a  specified  price  within  a  limited  time. 

Stocks  bought  on  the  buyer's  option,  giving  the 
buyer  the  option  to  demand  delivery  of  the  stock  on 
any  day  within  the  time  specified  in  the  contract  on 
one  day's  notice  to  the  seller.  In  stocks  sold  on 
seller's  option,  the  seller  may  deliver  the  stock  to 
the  buyer  on  any  day  within  the  time  specified  on  one 
day's  notice  to  the  buyer. 

When  a  dividend  becomes  due  on  a  stock  during 
the  operation  of  an  "option"  on  it,  the  dividend  is  col- 
lected by  the  seller  of  the  stock,  who  holds  it,  allows 
interest  on  it  and  pays  the  dividend,  with  the  interest 
on  it,  to  the  buyer  on  the  settlement  of  the  contract. 
When  an  "option"  on  a  stock  matures  during  the  clos- 
ing of  transfer  books,  the  seller  of  the  stock  gives 
to  the  buyer  of  the  stock  a  due  bill  for  the  dividend 


THE    INVESTOR'S     CATECHISM  87 


payable  when  the  dividend  is  paid,  but  the  due  bill 
bears  no  interest. 

What  is  the  meaning  of  OVERBOUGHT  ? 

When  more  stocks  are  bought  than  can  easily  be 
carried  and  there  is  no  demand,  it  having  for  the 
time  ceased.  It  is  then  said  that  the  market  is  over- 
bought and  a  reaction  of  prices  will  probably  follow. 

What  is  an  OVERSOLD  MARKET  ? 

When  more  stocks  are  sold  than  the  bears  can 
obtain  or  deliver  without  bidding  up  prices.  The 
market  then  is  technically  described  as  oversold. 

What  are  PACIFICS  ? 

Southern  Pacific,  Union  Pacific,  Northern  Pacific, 
Missouri  Pacific  and  Texas  Pacific. 

What  are  PAPER  PROFITS  ? 

Profits  existing  on  contracts  which  have  not  been 
closed,  as  they  are  not  represented  by  money  in  the 
owner's  possession,  they  are  classed  as  paper  profits. 

What  is  meant  by  the  term  PAR  ? 

The  face  value.  If  the  face  value  of  a  stock  is  $100 
it  is  at  par  when  selling  at  100,  and  above  par  when 
it  is  selling  at  a  higher  price,  and  is  below  par  when 
selling  at  a  lower  price. 


88  THE    INVESTOR'S     CATECHISM 

What  is  meant  by  PAR  OF  EXCHANGE  ? 

It  is  the  fixed  intrinsic  value  of  the  monetary  unit 
of  one  country  expressed  in  the  terms  of  the  money 
of  another  country,  which  uses  the  same  metal  as  a 
standard  of  value.  In  the  United  States  gold  money  is 
4.11  shillings,  or  4  shillings,  1.31  pence  in  English 
gold  money,  or  5  francs,  18.26  centimes  in  French 
gold  money,  or  4  reichmarks  (marks)  19.79  pfennig 
in  German  gold  money,  or  2  guilders  (florins)  48.78 
cents  in  Netherlands  (Holland)  gold  money,  etc. 

If  the  price  paid  for  a  bill  of  exchange  just  equals 
the  amount  for  which  it  is'  drawn,  then  exchange  is 
at  par;  if  more  is  paid,  exchange  is  above  par;  if  less 
is  paid,  exchange  is  below  par. 

Between  a  gold  standard  country  and  a  silver  stand- 
ard country,  there  can  exist  no  fixed  "par  of  exchange/' 
as  silver,  unlike  gold,  has  no  fixed  value. 

What  is  PASSING  A  DIVIDEND  ? 

A  term  adopted  by  corporations  to  describe  an  act 
which  expresses  the  fact  that  the  directors  have 
voted  against  declaring  it. 

What  is  the  meaning  of  PEGGED  ? 
A  stationary  market,  neither  declining  nor  advanc- 
ing, and  held  by  buying  or  selling  orders.     It  is  said 
to  be  "pegged"  when  the  market  is  dull  and  inactive. 

What  are  PIT  TRADERS  ? 

Grain  brokers  who  trade  or  speculate  for  their  own 
account,  accepting  the  fluctuating  profits  and  losses 
themselves. 


THE    INVESTOR'S    CATECHISM  89 

What  is  a  PLUNGER  ? 

A  speculator  who  trades  heavily  and  takes  big 
chances  of  profits  and  losses.  Successful  plungers 
are  rare. 

What  is  a  POINT  ? 

In  stocks  one  point  means  $i  a  share.  At  par  $100 
stock  has  advanced  a  point  when  it  sells  at  $101. 

What  is  a  POOL  ? 

When  stocks  and  funds  are  united  by  a  clique  to 
carry  through  a  corner  in  any  securities,  the  whole 
plan  is  called  a  "pool." 

What  are  POSTED  RATES  ? 

Each  day  dealers  in  foreign  exchange  post  rates  at 
which  they  will  sell  bills  in  small  amounts  to  travelers 
and  merchants. 

What  is  POUNDING  A  STOCK  ? 

Free  selling  of  long  and  short  stocks.  "The  market 
experienced  considerable  pounding  from  professional 
traders,"  means  that  there  was  liberal  buying  and 
selling  of  both  the  long  and  short  sides. 

What  constitutes  a  POWER  OF  ATTORNEY  ? 

When  a  person  wishes  to  delegate  to  an  agent  or 
representative  the  right  to  transact  any  business 
which  necessitates  signing  checks  drawn  against  his 
account  or  the  signing  of  papers  which  carry  any 
obligation,  he  issues  to  such  agent  or  representative 


go  THE    INVESTOR'S     CATECHISM 

a  written  "power  of  attorney,"  a  regular  legal  form, 
conveying  to  his  agent  or  representative  the  power 
to  sign,  placing  such  limitation  as  to  the  length  of 
time  such  power  of  attorney  shall  be  in  force,  as  the 
circumstances  or  business  may  require. 

What  is  a  PREMIUM  ? 

It  means  more  than  the  par  value  of  a  stock.  When 
stock  sells  at  a  "premium,"  it  sells  at  a  price  in  excess 
of  the  par  value.  Pennsylvania,  par  100,  selling  at  no, 
would  mean  that  the  stock  is  selling  ten  points  above 
par  value. 

What  are  PRIMARY  SHIPMENTS  ? 

The  aggregate  daily  shipments  of  grain  from  the 
primary  or  leading  points  to  consuming  points. 

What  is  the  PRINCIPAL  ? 

The  investment  on  which  interest  is  payable.  If 
you  buy  100  shares  of  New  York  Central  at  par 
$100,  the  total  amount  is  your  principal  or  invest- 
ment, thus,  $10,000.  Any  dividend  received  would 
be  interest  on  your  "principal"  or  investment. 

What  are  PRIVATE  WIRE  HOUSES  ? 

Commission  brokerage  houses,  having  headquarters 
in  New  York  and  Chicago,  which  connect  with  offices 
in  other  cities  by  leased  private  telegraph  wires.  Such 
brokers  engage  their  own  operators  and  supply  the 
correspondence  to  execute  orders  with  facility  and 
accuracy. 


THE    INVESTOR'S    CATECHISM          91 


What  is  meant  by  the  term  PRIVILEGE  ? 
It  is  a  term  used  on  the  Stock  Exchange  or  curb 
to  designate  a  call,  spread  or  straddle.  Privileges 
are  legal  and  are  frequently  bought  to  protect  the 
speculator  against  loss.  They  can  be  enforced  as 
contracts,  though  they  are  not  officially  recognized 
by  the  New  York  Stock  Exchange  rules. 

What  are  PROFESSIONALS  ? 

They  are  room-traders,  scalpers  and  others  who 
speculate  for  their  own  account. 

What  are  PROMOTERS  ? 

Those  who  assist  in  starting  or  promoting  a  finan- 
cial, industrial  or  commercial  enterprise  by  enlisting 
capital. 

What  are  PROMOTERS'  SHARES  ? 

They  are  shares  issued  by  corporations  and  paid  to 
the  promoter  in  payment  for  services  rendered  in 
organizing  or  promoting  a  company. 

What  is  PRO-RATE  ? 

To  allot  or  divide  in  proportion;  as  to  "pro-rate" 
dividends  or  assessments;  to  make  an  agreement  or 
arrangement  on  the  basis  of  a  given  rate  pro- 
portionately. 

What  is  a  PROXY  ? 

It  is  giving  to  another  the  power  to  represent  you. 
The  ordinary  use  of  the  word  is  applied  to  stock- 
holders' meetings  when  some  stockholders  cannot 


92          THE    INVESTOR'S    CATECHISM 

attend  in  person;  they  assign  their  right  to  vote  to 
some  other  stockholder  who  is  said  to  hold  the  proxy 
of  the  absent  stockholders. 

What  is  PULLING  THE  STRINGS  ? 

To  unload  stocks,  then  circulate  reliable  and  unre- 
liable bad  news  in  order  to  bring  about  a  decline, 
thereby  shaking  out  traders  on  a  margin. 

What  is  a  PUT  ? 

It  is  an  agreement  in  writing  or  may  be  verbal, 
binding  one  broker  to  receive  from  another  a  certain 
stock  named  within  a  stated  period  at  a  stated  price, 
if  the  holder  of  the  stock  shall  so  demand.  Illustra- 
tion: Brown  agrees  to  take  from  Smith  loo  shares 
of  Reading  at  $100  or  par  per  share,  any  time  within 
30  days  if  Smith  demands.  If  Reading  goes  down  be- 
low 99  so  Smith  can  make  a  profit  by  buying,  he  does 
so  and  forces  Brown  to  take  it  from  him  at  $100.  If 
the  stock  does  not  go  below  99  or  advances  within  the 
30  days,  Brown  makes  $100.  One  day's  notice  must 
always  be  given  when  stock  is  to  be  delivered,  except 
on  the  last  day  of  the  agreement. 

What  is  PYRAMIDING  ? 

A  speculator  buys  one  hundred  shares  of  stock  at 
the  market  price,  and  puts  up  a  10%  margin.  The 
stock  advances  5  points,  and  he  buys  fifty  shares 
more  with  his  five  point  profit.  If  it  advances  still 
further  he  buys  more  stock.  In  other  words  he 


THE    INVESTOR'S    CATECHISM          93 

uses  all  his  profits  to  purchase  more  stock  as  the  mar- 
ket goes  up.  The  same  rule,  only  with  reversed  con- 
ditions, is  applied  in  selling  stock  short  on  a  margin. 
Pyramiding  is  looked  upon  as  very  dangerous 
in  speculation. 

What  is  a  QUARTER  ? 

In  England  dealers  figure  2,240  pounds  to  the  ton. 
A  quarter  of  wheat  consists  of  eight  bushels,  or  480 
pounds. 

What  is  a  QUINTAL  ? 

In  metric  measure  it  is  equal  to  220.46  pounds 
avoirdupois. 

What  is  a  READJUSTMENT  ? 

It  is  the  reconstruction  of  a  corporation  when  all 
the  stockholders  are  in  favor  of  the  plan.  In  a  re- 
adjustment, when  new  bonds  are  issued  bearing  a 
lower  rate  of  interest  than  the  old  ones  and  an  ex- 
change is  made  with  stockholders,  the  loss  of  interest 
is  usually  made  up  in  a  bonus  of  stock  or  in  other 
security.  Other  forms  of  exchanging  are  adopted  at 
times,  at  the  pleasure  of  the  particular  corporation. 
Readjustment  of  financial  corporations  without  fore- 
closure proceedings  are  not  frequent,  though  some- 
times are  carried  through. 

What  are  REALIZING  SALES  ? 

Sales  of  stocks  made  to  secure  profits. 


94  THE    INVESTOR'S     CATECHISM 

What  is  a  REBATE  ? 

When  part  of  an  amount  paid  to  brokers  for  com- 
missions or  transportation  is  returned  to  the  customers 
it  is  said  to  be  "rebated." 

What  are  RECEIVER'S  CERTIFICATES  ? 

They  are  certificates  issued  by  a  receiver  for  the 
purpose  of  raising  money  for  a  corporation  when 
under  the  jurisdiction  of  a  court.  The  court  must 
approve  the  certificates  and  they  then  constitute  a 
first  lien  uporf  the  net  earnings  and  property  of  the 
corporation  in  receivership.  • 

What  are  RECEIVING  HOUSES  ? 

Grain  houses  which  make  a  business  of  receiving 
and  selling  cash  grain. 

What  is  a  RECOVERY  ? 

A  quick  upward  movement  after  a  decline  in  market 
prices. 

What  are  REGISTERED   BONDS  ? 

Government  bonds  which  are  payable  only  to  the 
order  of  an  individual  or  corporation,  the  name  of  the 
owner  being  registered  at  Washington.  If  stolen  or 
lost  "registered  bonds"  cannot  be  transferred. 

What  is  a  REHYPOTHECATION  ? 

It  is  taking  collateral  on  which  a  loan  has  already 
been  secured  and  securing  another  loan  on  the  same 
collateral  by  the  parties  who  made  the  first  loan.  If 
not  done  with  the  consent  of  the  owner  it  is  illegal. 


THE    INVESTOR'S    CATECHISM          95 

What  is  a  RELEASED  ENDORSED  BOND  ? 

If  a  bond  is  deposited  as  security  for  bank  circu- 
lation, or  to  comply  with  insurance  laws  and  so  en- 
dorsed, it  may  be  released  by  having  the  released 
property  acknowledged  before  a  notary  public, 
according  to  New  York  Stock  Exchange  rules. 

What  are  RENTES  ? 

They  are  bonds  and  other  securities  representing  the 
government  indebtedness  of  France;  also  the  sums 
paid  as  interest  on  this  indebtedness  are  classed  as 
rentes. 

What  is  a  REORGANIZATION  ? 

Applied  to  the  compulsory  reconstruction  of  a  cor- 
poration thereby  differing  from  readjustment.  It  fol- 
lows receivership  and  foreclosure  proceedings.  The 
plan  of  reorganization  ordinarily  is  to  pay  the  first 
mortgage  bonds  and  unpaid  interest  in  full.  If  they 
desire,  holders  may  exchange  their  bonds  of  the  old 
company  for  bonds  of  the  reorganized  corporation, 
together  with  or  without  stock.  Holders  of  old  bonds, 
that  prefer  cash,  are  paid.  In  some  cases  holders  who 
exchange  their  old  bonds  for  new,  receive  cash  for 
the  unpaid  interest. 

What  is  meant  by  REPUDIATION  ? 

It  is  a  term  applied  usually  to  the  rejection  of  a 
part  or  a  whole  of  its  debt  by  a  government,  but  is 
sometimes  used 'to  imply  the  rejection  of  any  debt 
or  obligation. 


96          THE    INVESTOR'S    CATECHISM 


What  is  a  REVENUE  ACCOUNT  ? 

It  comes  from  two  principal  sources  in  a  railroad 
accounting:  (i)  operation,  and  (2)  interest  on  loans 
and  investments  or  rentals.  Gross  income  from 
operation  consists  of  revenue  from  passenger  and 
freight  transportation,  baggage,  storage,  mail,  stock- 
yards, steamers,  elevators,  balance  of  car  mileage, 
switching  charges,  telegraph  companies,  etc. 


What  is  RIGGING  THE  MARKET  ? 

The  same  as  manipulation  of  stocks  by  insiders. 

What  is  RINGING  A  COTTON  CONTRACT  ? 

It  is  a  form  of  settlement  of  cotton  contract  differ- 
ences employed  at  one  time.  It  is  the  crude  idea 
involved  in  the  Clearing  House  principle,  and  was 
designed  to  eliminate  the  receipt  and  delivery  of  the 
cash  cotton. 

What  is  RIVER  PLATE  WHEAT  ? 

The  Rio  de  la  Plata  forms  the  boundary  line  between 
Uruguay  and  Argentina,  and  the  adjoining  territory 
produces  wheat  which  is  known  in  the  trade  as  "River 
Plate  Wheat." 

What  is  a  ROOM  TRADER  ? 

A  member  of  an  exchange  who  speculates  for  his 
own  profit  and  loss. 


THE    INVESTOR'S     CATECHISM  97 


What  is  a  SACK  ? 

Exported  flour  is  put  into  jute  sacks,  or  bags,  con- 
taining 140  pounds.  In  order  to  reduce  sacks  to 
barrels  the  rule  is  to  multiply  by  5  and  divide  by  7. 
A  sack  of  Rio  coffee  averages  200  pounds  and  of  Java 
coffee,  133  pounds. 

What  is  SADDLING  THE  MARKET  ? 

To  foist  or  saddle  a  certain  stock  on  the  Street. 

What  is  SALTING  A  MINE  ? 

It  is  placing  high  grade  ore  in  a  poor  or  worthless 
mine  for  the  purpose  of  deceiving  a  prospective 
purchaser. 

What  is  SALTING  DOWN  STOCK  ? 

To  buy  stock  and  hold  it  for  a  long  period; 
practically  the  equivalent  of  an  investment. 

What  is  a  SAMPLE  CROWD  ? 

Brokers  on  the  New  York  Produce  Exchange  and 
the  Chicago  Board  of  Trade  who  deal  in  car-lots  of 
grain,  basing  their  sales  and  deliveries  on  exhibits  of 
samples  in  the  Board  Room. 

What  is  a  SCALPER  ? 

A  "scalper"  is  a  room  trader  who  takes  y%  and  J4 
profits  or  losses,  when  trading  for  his  own  account. 
His  attention  is  confined  to  the  smallest  fluctuations 
and  he  acts  quickly. 


g8  THE    INVESTOR'S     CATECHISM 


What  is  SCALPING  ? 

It  is  following  the  rapid  changes  of  the  market,  and 
taking  small  profits  or  losses  with  the  rapidity  with 
which  the  market  fluctuates. 


What  is  SCRIP  ? 

Provisional  certificates  stating  that  the  holder  is 
entitled  to  receive  shares  of  stock,  bonds,  payment  of 
interest,  dividends  or  wages.  Such  certificates  when 
issued  in  lieu  of  stock  possess  no  voting  or  dividend 
rights. 

What  is  SEIGNORAGE  ? 

The  difference  between  the  commercial  money 
value  of  bullion  and  the  face  value  of  the  coin. 

What  is  SELLER  THE  YEAR  ? 

A  contract  which  gives  the  seller  the  right  to  deliver 
the  property  sold  at  any  time  within  one  year  from 
date  of  contract. 

What  is  a  SELLER'S  OPTION  ? 

The  seller  has  the  right  to  deliver  stock  at  his 
pleasure  or  convenience  within  a  time  stipulated  at 
a  stated  amount.  It  is  the  opposite  of  a  "buyer's 
option ;"  grain  contracts  at  "seller's  option"  may  be  de- 
livered any  day  in  the  delivery  month.  The  buyer 
must  receive  the  grain  or  sell  his  contract  on  or  before 
the  first  day  of  the  delivery  month  to  some  third  party. 


THE    INVESTOR'S    CATECHISM          99 

What  is  SELLING  OUT  A  MAN  ? 

Selling  down  a  stock  so  low  that  the  one  carrying 
it  on  margin  is  compelled  to  quit  and  perhaps  fail. 
To  dispose  of  "long"  stocks  when  a  speculator  has 
failed  to  make  good  his  margins. 

What  is  a  SHARE  ? 

One  of  the  equal  parts  into  which  the  capital  stock 
of  a  company  or  corporation  is  divided.  The  unit  of 
stock  division. 

What  are  FOUNDERS'  SHARES  ? 

Shares  which  are  sometimes  given  to  the  founders 
and  promoters  of  a  company;  such  shares  generally 
divide  the  surplus  profits  with  the  common  shares 
after  a  certain  percentage  has  been  paid  on  the  latter. 
These  shares  are  chiefly  the  result  of  an  English 
custom,  and  are  not  usually  known  in  America. 

What  is  SHIFTING  OF  LOANS  ? 

Banks  are  sometimes  obliged  to  call  many  loans, 
and  brokers  are  obliged  to  pay  off  their  loans  and 
renew  them  with  the  same  bank  or  some  other  bank 
at  new  rates.  This  process  is  known  as  "shifting  of 
loans." 

What  is  a  SHILLING  ? 

The  English  shilling  is  a  silver  coin,  equal  to  12 
pence;  the  2Oth  part  of  one  pound  sterling  and  24.3 
cents.  A  York  shilling  is  equal  to  half  an  English 
shilling. 


ioo        THE    INVESTOR'S    CATECHISM 


What  is  a  SHORT  INTEREST  ? 

Any  interest  in  the  market  represented  by  the 
aggregate  sales  of  men  who  have  sold  stocks  with  the 
expectation  of  buying  at  lower  prices. 


How  are  SHORT  INTERESTS  sometimes  created  ? 

Taking  a  period  when  a  corner  is  being  worked  in 
a  stock,  the  practice  of  those  engineering  it  is  to 
freely  loan  the  stock  in  a  way  to  encourage  the  crea- 
tion of  a  "short  interest"  'in  it.  When  the  "short 
interest"  has  grown  enough  and  the  stock  is  heavily 
over-sold,  the  demand  for  the  return  of  the  stock  brings 
the  corner  to  a  climax. 

What  is  a  SHORT  MARKET  ? 

An  oversold  market.  When  the  total  contracts  for 
the  delivery  of  stocks  exceed  the  supply  at  a  certain 
range  of  prices,  the  market  is  said  to  be  short. 


What  is  SHORT  SELLING  ? 

It  is  selling  stocks,  then  borrowing  them  in  order 
to  make  immediate  delivery.  When  finally  bought, 
such  stocks  must  be  returned. 


What  is  a  SICK  MARKET  ? 

When  the  market  is  suffering  from  previous  over- 
speculation,  and  there  is  a  lull  in  buying. 


THE    INVESTOR'S    CATECHISM        101 

What  are  SILVER  CERTIFICATES  ? 

Notes  not  legal  tender  but  receivable  for  public 
dues.  They  are  issued  in  denominations  of  $i,  $2,  $5 
and  $10,  and  higher,  by  the  Government  against  silver 
dollars  deposited  in  the  Treasury. 

What  is  a  SINKING  FUND  ? 

Any  sum  or  part  of  a  corporation's  income  set  apart 
at  specified  times  for  the  redemption  of  debts. 

What  is  a  SLUMP  ? 
A  serious,  unexpected   decline  in   price  of  stocks. 

What  is  a  SNIPE  ? 

A  curbstone  broker  was,  in  earlier  days,  referred  to 
as  a  "snipe," 

What  is  a  SOFT  SPOT  ? 

A  weak  point  in  the  market,  when  any  small  orders 
break  prices. 

What  are  SOUTHERNS  ? 

A  term  applied  to  Southern  Railway,  Louisville  & 
Nashville,  Norfolk  &  Western,  Chesapeake  &  Ohio, 
and  other  Southern  Railroads. 

What  are  SPECIALISTS  ? 

Brokers  who  make  a  specialty  of  dealing  in  one  or 
two  stocks  only;  also  called  "$2  brokers;"  owing  to 
many  of  their  orders  coming  from  other  brokers,  for 
which  they  receive  $2  for  each  100  shares  bought  or 
sold. 


io2        THE    INVESTOR'S    CATECHISM 

What  is  a  SPLIT  ? 

A  "split"  deal  means  that  on  the  produce  market 
when  one-half  of  an  even  number  of  bushels  of  corn, 
etc.,  is  sold  at  one  price,  and  the  other  half  at  another, 
the  price  is  split  in  the  bill  rendered.  Supposing 
5,000  bushels  are  sold  at  a  split  price  of  32-32% — 
2,500  would  be  billed  at  32  and  2,500  at  32%. 

What  is  a  SPREAD  ? 

A  double  stock  privilege  which  gives  the  holder 
the  right  to  deliver  or  demand  certain  stock  on  stated 
terms,  also  grain  price  differences  between  different 
options,  or  between  the  same  option  in  different 
cities.  The  difference  between  the  put  and  call  price 
of  any  stock. 

How  do  SPREAD  and  BACK  SPREAD  differ  ? 

The  difference  in  equivalent  prices  between  New 
York  and  London  permits  two  kinds  of  operations  in 
stocks  that  are  dealt  in  by  both  markets.  One  opera- 
tion is  called  a  "spread,"  and  the  other  a  "back  spread." 

A  "spread,"  as  employed  in  arbitrage  dealings, 
means  more  than  a  normal  difference  in  prices  between 
London  and  New  York.  The  stock  is  sold  in  London 
where  the  higher  price  prevails,  and  bought  in  New 
York,  where  a  lower  price  prevails.  Then,  when  the 
equality  in  price  is  restored  the  transaction  is  closed 
by  buying  and  selling  in  New  York. 

In  a  "back  spread"  there  must  be  less  than  the  nor- 
mal difference  in  prices  between  New  York  and 
London. 


THE    INVESTOR'S    CATECHISM        103 

What  is  being  SQUEEZED  ? 

When  the  market  has  been  sold  short  and  the  shorts 
become  frightened  and  are  forced  to  excitedly  bid  up 
prices  in  competition  with  the  owners  of  stocks,  they 
are  said  to  have  been  "squeezed." 

What  is  STOCK  ? 

Certificates  issued  by  a  corporation  legally  certify- 
ing that  the  holder  holds  ownership  of  a  certain 
number  of  shares  in  such  corporation. 

What  is  COMMON  STOCK  ? 

Common  stock,  general  or  ordinary  stock  differs 
from  preferred  stock,  because  it  has  no  preference  as 
to  dividends  or  assets.  When  a  corporation  issues 
preferred  stock  it  is  necessary  to  give  the  ordinary 
stock  the  title  of  "common"  to  distinguish  it  from  the 
"preferred."  When  there  is  no  issue  of  preferred,  then 
the  ordinary  stock  is  not  referred  to  as  "common," 
but  is  known  simply  as  capital  stock.  Sometimes 
there  are  different  kinds  of  common  stock  or  ordinary 
stock,  particularly  English  issues.  A  portion  of  the 
issue  may  be  called  "deferred"  because  no  dividend 
will  be  paid  until  a  prior  portion  has  received  a  divi- 
dend at  a  fixed  rate.  It  is  the  custom  in  such  cases 
to  designate  a  portion  of  the  issue  as  "A  stock"  and 
as  "B  stock"  to  distinguish  the  two  classes. 

What  is  a  GUARANTEED  STOCK  ? 

A  stock  having  its  dividends  guaranteed  by  another 
company  than  the  one  issuing  the  stock.  Railroads 


io4        THE    INVESTOR'S    CATECHISM 

frequently    guarantee     dividends     on     the    stock     of 
leased  roads. 

What  is  HALF  STOCK  ? 

Stock  issued  in  certificates  of  the  par  value  of  $50, 
instead  of  the  usual  $100.  Delaware,  Lackawanna 
&  Western,  Reading,  Pennsylvania  and  American 
Tobacco  are  examples  of  "half  stock." 

What  is  PREFERRED  STOCK  ? 

A  stock  that  shares  in  the  surplus  earnings  or 
dividends  of  a  corporation  before  the  common  stock 
of  a  corporation  can  participate.  Some  stock  issues 
are  arranged  in  first  and  second  "preferred"  and  "com- 
mon" classes,  but  ordinarily,  only  "preferred"  and 
"common"  stock  are  specified  in  the  capitalization  of  a 
corporation. 

What  is  SPILLING  STOCK  ? 

When  stocks  are  dumped  on  the  market  from  neces- 
sity, to  break  prices  or  take  profits,  the  act  is  called 
"spilling  stock." 

What  is  a  TRUSTEE  STOCK  ? 

The  highest  class  stock  issued,  such  as  may  be 
passed  on  and  authorized  by  law  in  which  trustees 
may  invest  their  trust  funds. 

What  are  UNLISTED  STOCKS  ? 

They  are  stocks  not  listed  or  quoted  on  the  quota- 
tion board  of  the  Stock  Exchange.  They  are  classified 
in  what  is  called  the  Unlisted  Department  of  the  New 
York  Stock  Exchange. 


THE    INVESTOR'S    CATECHISM        105 

What  is  WATERED  STOCK  ? 

When  the  capital  stock  is  increased  without  an 
equal  increase  in  assets,  the  operation  is  termed 
"watering  stocks." 

How  should  a  STOCK  CERTIFICATE  be  endorsed  ? 

If  you  sell  or  transfer  your  stock,  notice  particu- 
larly how  the  certificate  is  filled  in  on  its  face.  If  it 
reads  John  Smith,  it  should  be  endorsed  John  Smith 
on  the  back  of  the  certificate  when  it  is  transferred  to 
another  party.  Do  not  sign  J.  Smith  or  any  other 
way  except  "John  Smith."  Fill  in  the  date  and  have 
it  witnessed,  then  send  it  to  your  broker  for  transfer. 
He  will  guarantee  your  signature. 

What  is  the  STOCK  EXCHANGE  CLEARING 
HOUSE  ? 

A  place  where  the  brokerage  differences  in  the 
accounts  of  the  members  of  the  New  York  Stock 
Exchange  are  settled. 

Before  the  establishment  of  the  clearing  house  a 
broker  who  had  made  sales  of  stock  was  obliged  to 
send  stocks  to  the  office  of  the  various  purchasers 
and  collect  payment  from  them,  and  brokers  from 
whom  he  had  bought  stocks  were  obliged  to  send 
the  stocks  to  his  office  to  collect  payment.  This  en- 
tailed annoyance  and  resulted  in  many  delays.  He 
was  compelled  to  make  collections  and  payments  for 
the  full  amounts,  but  under  the  clearing  house  plan, 
he  can  settle  all  transactions  in  one  operation. 


to6        THE    INVESTOR'S    CATECHISM 

A  member,  at  the  end  of  each  day,  makes  up  a  sheet 
called  a  clearing  house  sheet,  containing  his  pur- 
chases and  sales.  On  one  side  of  the  sheet,  under 
the  head,  "Received  from,"  puts  down  his  purchases, 
each  purchase  having  a  line  for  itself.  In  each  trans- 
action the  name  of  the  broker  from  whom  the  pur- 
chase was  made  comes  first,  and  then  in  order  below 
the  number  of  shares,  the  name  of  the  stock,  the  price 
at  which  purchased,  and  the  amount  in  dollars  of  the 
purchase. 

The  other  side  of  the  sheet  under  the  head, 
"Delivered  to,"  contains  the  list  of  stocks  sold. 

If  the  broker  has  bought  more  of  any  particular 
stock  than  he  has  sold,  or  sold  more  than  he  has 
bought,  there  is  a  stock  as  well  as  money  difference 
to  be  settled,  but  the  settlement  of  the  stock 
difference  is  provided  for  when  the  sheet  is  made  up. 

The  settling  price  is  an  arbitrary  price  fixed  by  the 
manager  of  the  clearing  house.  Each  day  at  the  close 
of  business  the  manager  of  the  clearing  house  sends 
out  through  the  ticker  the  settling  prices  for  the 
various  stocks  for  the  use  of  brokers  in  making  up 
their  clearing  house  sheets.  In  their  use  in  making 
up  the  sheets  they  are  called  making-up  prices;  in 
their  use  in  making  settlements  they  are  called  settling 
prices.  These  settling  prices  are  the  even  prices  next 
nearest  to  the  last  prices  of  the  day. 

The  broker  who  is  short  stocks  in  his  sheet  by 
selling  more  than  he  bought,  must  borrow  the  stocks 
that  he  is  short  of  for  his  deliveries,  according  to 
Stock  Exchange  Rule. 

Not  all  stocks  that  are  dealt  in  on  the  New  York 


THE    INVESTOR'S    CATECHISM        107 

Stock  Exchange  are  cleared  through  the  stock  ex- 
change house.  Only  those  on  the  clearing  house  list 
are  cleared.  The  stocks  on  this  list  are  the  ones 
actively  dealt  in.  If  an  inactive  stock  becomes  active 
it  is  put  on  the  list;  if  an  active  stock  becomes 
inactive  it  is  taken  off  the  list. 

Transactions  in  stocks  not  on  the  clearing  house 
list  are  not  reported  to  the  clearing  house  at  all. 
Settlements  in  these  stocks  are  made  between  the 
brokers  in  the  ordinary  course  of  business. 

What  is  BORROWING  AND  LENDING  STOCKS  ? 

When  a  customer  sells  stocks  "short,"  the  stocks 
must  be  delivered  to  the  purchaser,  and  must  be  bor- 
rowed to  make  delivery.  The  speculative  customer 
sells  stock  short  on  margin  and  the  broker  must  de- 
liver the  stock  to  the  purchaser  according  to  the 
Stock  Exchange  rules.  It  is  usually  very  easy  for 
the  broker  to  make  delivery  of  stock,  as  there  are 
holders  long  of  stock  and  willing  to  lend  it.  The 
lender  of  stock  on  exchange  is  credited  with  the  mar- 
ket value  of  it  in  money  and  pays  interest  to  the 
borrower. 

Brokers  on  the  New  York  Stock  Exchange  who 
have  stocks  to  borrow  or  to  lend  meet  immediately 
after  the  close  of  business  to  report  transactions 
closed,  and  arrange  deliveries  for  the  next  day. 
Should  they  fail  to  secure  the  stock  the  same  day,  they 
must  do  so  before  2:15  the  day  following.  When 
returning  borrowed  stock,  the  borrower  must  notify 
the  lender  before  it  is  called  on  the  day  of  delivery,  and 


io8        THE    INVESTOR'S    CATECHISM 

the  lender  is  required  to  observe  the  same  rule  in 
demanding  stock.  On  a  "flat"  loan  the  loaner  is 
relieved  from  the  cost  of  carrying  the  stock.  The 
premium  that  the  loaner  receives  is  velvet.  If  a 
loaned  stock  advances  in  market  price,  the  lender  may 
require  the  borrower  to  pay  the  difference  between  the 
price  at  which  the  stock  was  loaned  and  the  advance 
price.  On  the  other  hand,  if  the  stock  declines  in  price 
the  borrower  may  require  the  lender  to  return  to  him 
the  difference. 

What  is  STO'CK  POWER  ? 

It  is  a  name  assigned  to  an  irrevocable  power  of 
attorney  used  in  transferring  title  to  a  stock  certificate. 

What  is  a  STOP  ORDER  ? 

When  buyers  on  a  margin  do  not  wish  to  increase 
their  margins  or  are  operating  on  small  amounts, 
they  limit  their  losses  by  placing  a  limit  price  at 
which  to  buy  or  sell  their  orders  and  stop  further  loss. 

What  is  a  STRADDLE  ? 

It  is  similar  to  a  "spread,"  meaning  a  "put"  and 
"call"  privilege  combined,  with  only  one  price  named 
in  it.  The  stock  must  go  up  or  down  more  than  the 
amount  paid  for  the  "straddle"  before  there  is  any 
profit  in  it. 

What  is  a  SWIMMING  MARKET  ? 

When  everything  is  lively  and  the  trading  is  brisk, 
the  market  is  said  to  be  "swimming." 


THE    INVESTOR'S    CATECHISM        109 

What  is  a  SYNDICATE  ? 

In  financial  affairs  it  means  several  financiers  who 
associate  themselves  to  carry  out  some  plan  or 
scheme  of  promotion  or  financing  involving  large 
sums  of  money. 

What  are  TAILERS  ? 

A  following  of  little  traders  who  tail  on  a  bull  or 
a  bear  movement  on  the  theory  that  to  follow  in  the 
wake  of  the  successful  men  is  the  way  to  make  money. 

What  is  a  TAPE  READER  ? 

A  "tape  reader"  is  known  in  all  brokerage  offices 
and  generally  among  speculators.  He  has  gained  his 
title  from  his  ability  to  stand  over  a  ticker  and 
anticipate  the  fluctuations  of  the  market.  Years  of 
experience  are  required  to  make  a  proficient  "tape 
reader."  Tape  reading,  though  not  an  exact  science, 
might  be  termed  an  approximate  one.  It  is  not 
alone  the  knowledge  gained  in  standing  over  a 
ticker,  but  one  must  have  "trading  sense,"  an  innate 
quality  or  gift,  some  possess,  but  others  do  not.  The 
tape  reader  watches  all  the  transactions  on  the  floor 
of  the  Stock  Exchange,  as  recorded  on  the  tape,  and 
deduces  therefrom  the  momentary  changes  or  move- 
ments of  the  market.  The  slightest  variation  in  price 
or  volume  may  have  an  immediate  effect  on  the 
market  trend  and  the  experienced  tape  reader,  with 
the  rapidity  of  a  lightning  calculator,  forms  a  logical 
conclusion  from  the  signs  he  reads.  A  tape  reader  is 


no         THE    INVESTOR'S     CATECHISM 


never  a  decided  Bull  or  a  Bear.  He  changes  his 
market  position  many  times  a  day  during  an  active 
market,  and  must  be  able  to  reverse  himself  with 
facility  and  dispatch. 

What  is  a  TICKER  ? 

A  stock  indicator.  Quotations  made  in  an  exchange 
board  room  are  telegraphed  by  operators  to  a  ticker 
office  and  then  immediately  sent  out  over  a  wire 
system  connecting  with  thousands  of  tickers.  The 
ticker  is  a  glass-enclosed  mechanical  device  through 
which  runs  a  ribbon  of  paper  on  which  is  printed  the 
abbreviation  of  the  stock  and  bond  names  with  the 
quantities  sold  and  prices. 

What  is  a  TIERCE  ? 

A  cask  of  lard  containing  340  pounds.  Lard  is 
quoted  at  so  much  per  100  pounds.  The  value  of  a 
tierce  is  obtained  on  multiplying  by  3  2-5. 

What  is  a  TIME  LOAN  ? 

In  Wall  Street  it  is  money  borrowed  for  a  specified 
period,  ordinarily  not  less  than  30  days,  nor  more 
than  six  months.  Such  loans  are  secured  by  a  deposit 
of  collateral  in  the  form  of  stocks  and  bonds. 

What  is  a  TIRED  MARKET  ? 

After  a  partly  forced  advance  of  the  market,  when 
buying  orders  are  exhausted,  the  market  is  said  to 
look  tired. 


THE  INVESTOR'S  CATECHISM    in 

What  is  the  meaning  of  TO  BUY  IN  ? 

Purchasing  stock  in  order  to  meet  a  short  contract, 
or  to  enable  one  to  return  stock  which  has  been 
borrowed,  is  termed  "buying  in." 

What  is  TONNAGE  ? 

The  carrying  capacity  of  vessels  is  termed  tonnage. 
In  Wall  Street  the  word  is  used  to  designate  the  total 
amount  of  freight  handled  by  railroads. 

What  is  TRAFFIC  DENSITY  ? 

Railroads  in  their  reports  give  the  number  of  tons 
and  the  number  of  passengers  carried  one  mile,  with 
the  average  rate  received  per  ton  and  per  passenger. 
The  traffic  density  is  obtained  by  dividing  the  ton 
mileage  by  the  number  of  miles  operated  either  in 
freight  or  passenger  service. 

What  is  TRANSCONTINENTAL  ? 

Crossing  a  continent;  applied  to  railroads  having 
transcontinental  lines. 

What  is  a  TRANSFER  ? 

When  stock  is  sold  it  is  registered  in  the  name  of 
the  purchaser  on  the  books  of  the  company  issuing 
the  stock.  If  the  same  stock  is  again  sold  by  the  pur- 
chaser to  another  person,  said  stock  must  be  trans- 
ferred on  the  books  of  the  company  to  enable  the  new 
purchaser  to  be  a  stockholder  of  record  in  order  to 
receive  any  dividends  that  may  be  paid  by  the 
company. 


ii2         THE    INVESTOR'S    CATECHISM 


What  is  A  GOOD  TRANSFER? 

This  term  applies  to  stock  endorsed  the  same  on  the 
back  as  the  name  reads  on  the  face  of  the  stock  certi- 
ficate. If  endorsed  in  any  other  form  it  is  not  legal 
and  will  not  be  accepted  for  transfer  on  the  books  of 
the  company  issuing  the  stock. 

What  are  TRAPS  ? 

Formerly  applied  to  broken-down,  depreciated  rail- 
road and  other  stocks.  Not  used  now. 

What  are  TRUNK  LINES  ? 

Through  railroad  lines  extending  from  the  Atlantic 
coast  to  Western  points,  such  as  Chicago,  St.  Louis, 
Kansas  City,  etc. 

What  is  a  TRUST  COMPANY  ? 

An  incorporated  banking  institution  operating  on 
a  charter  which  gives  it  the  power  to  accept  and 
execute  trusts  as  provided  by  law,  also  to  receive 
deposits  of  money  or  other  personal  property,  issuing 
obligations  therefor.  To  lend  money  on  real  and  per- 
sonal securities,  according  to  the  law  of  the  State  in 
which  it  is  incorporated.  Trust  companies  are  not 
permitted  to  issue  bills  to  circulate  as  money,  nor  to 
make  loans  directly  or  indirectly  to  their  officers. 

What  is  TWISTING  THE  SHORTS  ? 

When  there  is  a  big  short  interest  in  the  market, 
and  prices  are  suddenly  and  artificially  advanced, 


THE    INVESTOR'S    CATECHISM        113 


thereby  compelling  the  bears  to  settle  with  heavy 
losses,  the  process  is  referred  to  as  "Twisting  the 
shorts." 

What  is  TWO  PER  CENT.  UP  ? 

Stock  bought  or  sold  at  buyer's  or  seller's  option 
for  a  number  of  days  is  usually  sold  at  a  price  of  2 
per  cent,  up  from  the  market.  The  parties  to  a  con- 
tract sometimes  insert  a  provision  for  a  preliminary 
deposit  of  10  per  cent,  more  or  less,  to  insure  the 
contract. 

What  is  an  UNDERLYING  MORTGAGE? 

One  having  a  prior  claim  or  date  to  another  one. 
A  first  mortgage  underlies  a  second  one,  etc. 

What  is  an  UNDERTONE  ? 

Used  in  designating  the  underlying  strength  or 
weakness  of  the  markets  by  financial  letter  writers, 
as  "The  market  had  a  strong  undertone." 

What  is  UNDER  THE  RULE  ? 

When  a  member  of  an  exchange  fails  to  receive  or 
deliver  stock  for  which  he  has  made  contracts,  the 
chairman  sells  or  buys  the  stock  in  question  for  the 
account  of  the  delinquent  member,  who  is  charged 
with  any  deficit  resulting  therefrom.  Such  trans- 
actions are  made  under  the  exchanging  rule  providing 
for  them,  and  the  letters  "U.  R."  on  the  ticker  tape 
designate  such  transactions. 


Ii4         THE    INVESTOR'S     CATECHISM 


What  is  an  UNDERWRITER  ? 

In  insurance  affairs,  one  who  insures.  In  corporate 
affairs,  one  who  subscribes  for  the  stock  of  a  company 
for  the  purposes  of  financing  or  reselling  the  securities. 
This  process  is  called  "underwriting." 

What  are  UNITED  STATES  TREASURY  NOTES  ? 

Notes  issued  in  payment  of  purchases  of  silver  and 
gold,  and  redeemable  in  gold  or  silver  at  the  option  of 
the  Secretary  of  the  Treasury.  The  Sherman  Act  of 
1890  made  these  notes  legal  tender  except  when 
otherwise  stipulated. 

What  is  UNLOADING  ? 

Selling  out  a  stock  which  has  been  carried  for  some 
time. 

What  is  an  UPSET  PRICE  ? 

The  lowest  limit  price  at  which  goods  or  securities 
will  be  sold  when  offered  at  auction. 

What  is  a  VALUE  BILL  ? 

A  draft  or  bill  of  exchange  drawn  against  consign- 
ments of  property. 

What  is  a  VOTING  TRUST  ? 

Placing  all  or  the  majority  of  the  stock  of  a  com- 
pany in  a  pool  or  trust  for  a  certain  specified  time 
for  voting  purposes  only.  Such  a  trust  is  formed  at 
times  to  carry  out  policies  agreed  upon. 


THE    INVESTOR'S    CATECHISM        115 

What  are  WAREHOUSE   RECEIPTS  ? 

Receipts  of  a  warehouseman  for  goods  received  by 
him  and  held  in  store.  Warehouse  receipts  are 
assignable  and  are  frequently  accepted  by  banks  to 
secure  loans.  The  transfer  of  the  receipt  completes 
the  delivery  of  the  property. 

.What  is  WASHING? 

A  term  used  to  describe  the  simultaneous  operation 
of  buying  and  selling  the  same  stock  for  the  purpose 
of  making  quotations,  and  inducing  speculation.  Such 
sales  are  called  Wash  Sales. 

What  is  WATERED  STOCK  ? 

An  increase  in  or  the  issuing  of  capital  stock,  with 
no  corresponding  increase  in  assets,  or  when  there 
are  no  real  assets  on  which  the  stock  is  issued. 

What  is  WHIPSAWED  ? 

When  speculators  are  caught  buying  at  the  top  and 
selling  at  the  bottom  market  prices,  or  selling  at  the 
bottom  and  buying  at  the  top  in  a  market  movement, 
they  are  said  to  be  "whipsawed." 

What  is  a  WIDE  OPENING  ? 

During  active  business  when  a  large  crowd  is  trad- 
ing in  a  single  stock  the  opening  sales  frequently  are 
at  varying  prices,  sometimes  as  high  as  ten  points 
difference  in  the  selling  price. 


n6        THE    INVESTOR'S    CATECHISM 

What  is  the  meaning  of  WIND  ? 

Sometimes  applied  to  bears.  As  they  do  not  pos- 
sess the  property  which  they  sell,  they  are  referred  to 
as  "selling  wind." 

What  is  the  meaning  of  WIPED  OUT  ? 

When  a  speculator  loses  all  of  his  margins  or 
principal,  he  is  "wiped  out." 

What  is  WORKED  FOR  EXPORT  ? 

Grain  that  has  been  sold  and  worked  out  of  the 
storehouse  and  into  the  hold  of  a  vessel,  is  referred 
to  as  "worked  for  export." 

What  are  WORLD'S  SHIPMENTS  ? 

Weekly  shipments  of  grain  from  exporting  to 
importing  countries  are  called  "world's  shipments." 


THE    INVESTOR'S     CATECHISM        117 


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THE    INVESTOR'S    CATECHISM        123 


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THE    INVESTOR'S    CATECHISM 


METRIC  SYSTEM. 

The  Decimal  or  Metric  System  of  moneys,  weights,  and 
measures  is  now  established  in  France,  and  has  been  adopted 
to  a  greater  or  less  extent,  in  Belgium,  Spain,  Portugal,  Hol- 
land, Switzerland,  Sweden,  Austria,  Turkey,  Brazil,  and 
several  other  countries. 

MM.  Delambre  and  Mechain  estimated  the  length  of  the 
meridian  from  the  Equator  to  the  Pole  by  the  measurement 
of  an  arc  between  Dunkirk  and  Barcelona,  and  the  ten  mil- 
lionth part  of  this  meridian,  or  one-fourth  of  the  circumfer- 
ence of  the  earth,  was  taken  as  the  unit  of  length,  and  is 
termed  a  Metre. 

The  square  of  10  metres  is  the  unit  of  surface  measure, 
and  is  called  an  Are  (pronounced  air). 

The  cube  of  the  tenth  part  of  a  metre  is  the  unit  of 
capacity  for  either  Liquid  or  Dry  Measure,  and  is  called  a 
Litre  (pronounced  le-tur). 

A  kil'olitre,  the  cube  of  a  metre,  is  tlje  unit  of  Solid 
Measure,  and  is  known  as  the  Stere. 

A  Gramme  is  the  weight  of  a  quantity  of  water,  at  32° 
Fahr.  (the  temperature  of  melting  ice),  contained  in  a  cube 
of  the  one-hundredth  part  of  a  metre. 

The  names  of  the  multiples  of  these  integers  are  derived 
from  the  Greek,  and  those  of  the  divisions  from  the  Latin 
language. 

Deca  signifies  10  times. 
Hecto  signifies  100  times. 
Kilo  signifies  1,000  times. 
Myria  signifies  10,000  times. 
Deci,  the  loth  part. 
Centi,  the  looth  part. 
Mille,  the  i,oooth  part. 

MONEY. 

TO  Centimes=i  Decime. 

10  Decimes,  or  100  Centimes=i   Franc. 


^  French   coin   is  based  upon   the  unit   of  weight  _  the 

Gramme. 


THE    INVESTOR'S     CATECHISM        125 


WEIGHTS. 

Gramme= 15. 432349   grains    Troy. 

The  kilogramme  (1000)  grammes)  is  the  weight  most  fre- 
quently used  in  commerce,  and  is  equal  to  2.679227  Ifos.  (2  fbs. 
8  oz.  3  dwt.)  Troy;  or,  2.204621  Ibs.  (2  Ibs.  3  oz.  4.652  dr.) 

453  3~5  grammes—  I  ft>  avoirdupois. 

373/4  grammes=i   lb  Troy. 

453  3~5  grammes=:i  lb  avoirdupois. 

I   cwt.=5O.8o234  kilogrammes. 

100  myriogrammes=i  ton,  20  1-6  Ibs. 

i    quintal  metrique— 100  kilogrammes. 

Note — At  the  U.  S.  Post  Office  15  grammes  are  taken  as 
y2  ounce. 

MEASURES  OF  LENGTH. 

i  metre=39,37i  English  inches. 

i  decimetre=:3.937i   English  inches. 

i  kilometre=o.62i38  miles. 

i  English  mile=: i. 609036  kilometres. 

Merchants  usually  reckon  the  metre  as  one  and  one-twelfth 
yards. 

MEASURES  OF  SURFACE. 

i  are— a  square  decametr  6=119.6046  square  yards. 

i  centiare=io.7644i  square  feet= 1.196046  square  yards. 

I  hectare=2  acres,  i  rood,  35  perches. 

i   acre,   English=40466  hectares. 

100  square  feet=9.28987  square  metres. 

MEASURES  OF  CAPACITY. 

i  litre=6i. 02803  cubic  inches=2.H35  wine  pints,  or  1.7608 
imperial  pints,  or  908  quarts  dry  measure. 

i  hectplitre=3. 53171  cubic  feet=:22.oi  imperial  gallons,  or 
26.419  wine  gallons,  or  2.839  Winchester  bus. 

MEASURES  OF  SOLIDITY. 

i  stere  or  kilolitre=35. 31714  cubic  feet=.2759  cord. 

I  stereo  i. 308042  cubic  yards. 

100  cubic  inches=n6.38592  cubic  centimetres. 
The  terms  of  the  Metric  System  are  now  generally  used 
by  scientific  men.  Congress,  by  act  of  July  27,  1866,  made  it 
lawful  in  contracts  and  in  legal  proceedings  to  employ  the 
weights  and  measures  of  the  Metric  System;  and  Great 
Britain  in  1864  passed  an  act  authorizing  its  use. 


126        THE    INVESTOR'S    CATECHISM 


VALUE  OF  FOREIGN  MONEY. 

(c.  copper;  g.  gold;  s.  silver). 


Coin." 

COUNTRY. 

US. 

Equiva- 
lent. 

Argentine    g 

Argentine    Rep 

^482 

Bolivar    s 

Venezuela 

TQ 

Boliviano     s           .    . 

Bolivia    . 

A'i 

Centavo,    c  

Mexico    

005 

Centime,    c  

France    

O02 

Condor,    g   

Qhile    

365 

Russia     

00  S 

Crown     s 

Austria 

20 

Crown     s 

Denmark 

27 

Crown     s                           ... 

Great  Britain 

I  20 

Crown    s                            .  . 

Norway 

27 

Crown    s         .          .        ... 

Sweden 

27 

Dollar     s 

Mexico    

47 

Drachma,    s   

Greece    

IQ 

Farthing,   c  

Great  Britain   

.00  5 

Florin    s 

Austria 

4O 

Florin    s 

Great  Britain 

*^A 

48 

Florin    s 

Netherlands 

40 

Franc     s 

France                ... 

10 

Gourde     s                       . 

Hayti                 

96 

Guilder     s                       ... 

Netherlands    

40 

Guinea,    g  

Great  Britain    

e  ii 

Gulden,    s       

Austria   

.48 

Heller    bronze 

Austria 

OO25 

Kran     s 

Persia 

08 

Kreuser 

OO^ 

Krone    (see    crown)  .  . 

Lira     s  

Italy    

.19 

Lira,    g  

Turkey    

4.40 

IMark     s 

Germany 

24 

IVtedjidie    g 

Turkey      

'88 

Milreis     s             

Brazil      

cc 

Milreis     g  

Portugal     

1.08 

Ore    c  

Scandinavia    

.0025 

Penny,    c  

Great  Britain    

.02 

Peseta,   s  .  , 

Spain  .             

.19 

THE    INVESTOR'S     CATECHISM        127 


VALUE  OF  FOREIGN  MONEY.— Continued. 


Coin. 

COUNTRY. 

U.  S. 
Equiva- 
lent. 

Peso,    s 

Central  America   .... 

.47 

Peso,    s 

Cuba    

.07 

Peso,    s 

Uruguay 

1  .03 

Pfennig,   c  

Germany   

.OO25 

Piastre,    s  

Turkey    

.04 

Pound,   g  

Egypt    .  .  .  .  

4-04 

Pound,   g  

Great  Britain    

4.87 

Reis   (see  Milreis  or  
1000    reis)  

Ruble,    g  

Russia  

•  51 

Rupee,    s  

India    

."?2 

Scudo,  g,  s  

Italy  

.OC 

Sen,  c  

lapan  . 

.005 

Shilling,   s  

Great  Britain    

.24 

Sixpence,   s  

Great  Britain    

.12 

Sol,    s  

Peru     

•49 

Soldo,   c  

Italy  

.OI 

Sovereign,    g  

Great  Britain    

4.87 

Sucre,   s  

Ecuador    

•49 

*Tael   (customs)   s  

China    

.72 

Yen,  s.  .  .  . 

Japan 

CQ 

*The  value  of  the  Chinese  tael  varies  in  different  provinces 
from  36  to  72  cents. 


128         THE    INVESTOR'S     CATECHISM 


LEGAL  INTEREST  AND  STATUTE  OF  LIMITATIONS. 

INTEREST.  LIMITATIONS. 


c  _,  c«  o  u.  ,    G  cfl 

bTATE.  rt*~  O-^  bo  £  £                 ~ 

P.  ct.  P.  ct.  Yrs.  Yrs.  Yrs. 

Alabama    8  8  20  *6           3 

Alaska    8  10 

Arkansas 6  10  10  5            3 

Arizona    7  Any  553 

California    7  Any  542 

Colorado   8  Any  20  6            6 

Connecticut    6  6  $           6 

Delaware    6  6  §  6           3 

District  of  Columbia  6  10  12  3            3 

Florida     8  10  20  5            2 

Georgia   7  8  7  6           4 

Idaho   10  12  6  5            4 

Illinois  5  7  20  10            5 

Indiana    6  8  flio  10           6 

Indian  Territory  ...  6  10  10  5            3 

Iowa  6  8  20  10           5 

Kansas 6  10  5  5           3 

Kentucky    6  6  15  15  *5 

Louisiana    5  8  10  5            3 

Maine     6  Any  20  ff6            6 

Maryland    6  6  12  3            3 

Massachusetts  6  Any  20  6           6 

Michigan 5  7  6  6           6 

Minnesota     7  10  10  6            6 

Mississippi   6  10  7  6           3 

Missouri    6  8  20  10           5 

Montana    8  Any  10  8           5 

Nebraska    7  10  5  5            4 

Nevada 7  Any  6  64 

New   Hampshire  6  6  20  66 

New  Jersey    6  6  20  6            6 

New  Mexico    6  12  7  6            4 

New  York    .  6  6  20  6           6 


THE    INVESTOR'S    CATECHISM        129 


LEGAL  INTEREST  AND  STATUTE  OF  LIMITATIONS. 

(Continued). 

INTEREST.              LIMITATIONS. 

<u               ,.tS 

+i 

C  rt 

•*-» 

STATE. 

1s 

§s 

i    G 

8 

en 

^*-» 

^> 

m 

^ 

fc 

<J 

P.  ct. 

P.  ct. 

Yrs. 

Yrs. 

Yrs. 

North  Carolina  
North  Dakota  

6 
6 

6 

12 

10 
10 

1; 

Ohio     

6 

8 

C 

je 

6 

Oklahoma  

7 

12 

J 

I 

*3 

-i 

Oregon    

6 

IO 

IO 

g 

g 

Pennsylvania   

6 

6 

5 

6 

6 

Rhode   Island    

6 

Any 

20 

6 

6 

South    Carolina    .  .  . 

7 

8 

10 

6 

6 

South  Dakota 

7 

12 

IO 

6 

6 

Tennessee  

6 

6 

IO 

6 

6 

Texas   

6 

IO 

IO 

4 

2 

Utah   

8 
6 

Any 
6 

«6 

2 

6 

Vermont   

Virginia  

6 

6 

IO 

TTV' 

Washington   .... 

6 
6 

12 

6 

IO 

6 

10 
20 

10 

6 

3 

I 

West   Virginia    
Wisconsin  

Wyoming   

8 

12 

21 

w 

5 

\J 

8 

CANADA. 

' 

British  Columbia  .  . 
Manitoba  

6 
6 

Any 
Any 

20 
IO 

6 
6 

6 
5 

New  Brunswick   .  .  . 

6 

Any 

2O 

6 

V 

6 

Nova   Scotia    

6 

Any 
Any 

20 
2O 

6 
6 

6 

Ontario   

Quebec    

6 

Any 

5 

5 

*Under  seal  10. 
No  law. 

Negotiable  notes  6;  non-negotiable 
Varies  by  counties. 
Real  estate  20. 
fUndcr  seal  12. 
seal  14. 


17. 


THE   INVESTOR'S    CATECHISM 


ADDENDA 

What  is  a  CAMPER  ? 

One  who  watches  the  moves  of  the  big  operators 
in  the  Street  and  tries  to  buy  and  sell  when  the 
leaders  are  doing  the  same  is  called  a  "camper." 

What  is  a  DUMMY  DIRECTOR  ? 

It  is  one  who  is  elected  for  a  temporary  period, 
having  no  real  interest  in  the  corporation,  or  one  who 
is  elected  to  serve  the  interests  of  some  controlling 
power,  to  act  and  do  as  he  is  bid  without  individual 
reason  or  purpose. 

What  is  a  DUMMY  STOCKHOLDER  ? 

One  in  whose  name  stock  is  issued,  but  who  does 
not  own  it;  dummy  stockholders  are  used  by  the 
actual  owners  of  stock  to  conceal  their  names  from 
the  public,  for  various  purposes. 

What  is  EMERGENCY  CURRENCY  ? 

During  a  panic  or  any  stringent  money  market,  any 
currency  provided  outside  of  the  regular  issue  of  the 
banks  and  government  is  called  an  "Emergency 
Currency."  For  instance,  Clearing  House  Certifi- 
cates such  as  were  issued  by  the  Clearing  House 
Associations  of  the  principal  cities  in  1908,  provided 
an  "Emergency  Currency." 


THE   INVESTOR'S    CATECHISM 

What  are  FALLING  AVERAGES  ? 

If  the  amount  of  the  average  deposits,  loans,  cash 
balances,  etc.,  in  the  weekly  statements  of  the  banks 
are  declining,  the  statement  is  referred  to  as  made 
up  on  "falling  averages." 

What  is  FIAT  MONEY  ? 

It  is  paper  money  issued  by  a  government  not 
backed  by  an  equal  "amount  in  real  value  of  gold  or 
silver  coin  or  bullion  deposited  in  the  United  States 
Treasury.  In  other  words,  it  is  notes  or  paper  money 
issued  by  a  government  on  its  credit. 

What  is  a  FINANCE  COMMITTEE  ? 

It  is  a  committee  of  a  corporation  elected  or  ap- 
pointed to  arrange  all  questions  relating  to  the  finances 
of  the  corporation  or  institution.  Such  a  committee 
must  sanction  or  report  favorably  on  any  important 
changes  in  a  financial  policy  before  it  can  be  put  into 
execution.  The  number  of  members  of  a  "finance 
committee"  differs  according  to  the  by-laws  of  a 
corporation. 

What  is  a  FISCAL  AGENT  ? 

The  term  is  ambiguous  in  a  legal  sense,  as  its  direct 
application  has  not  been  established  in  a  court  of 
law.  The  word  "fiscal"  practically  means  financial, 
so  in  that  form  a  fiscal  agent  is  a  financial  agent  or 
an  agent  representing  the  money  interest  of  an  in- 
dividual or  a  firm.  Usage  among  brokers  has 


THE  INVESTOR'S   CATECHISM 

brought  the  acceptance  of  "fiscal  agent"  to  mean  an 
ex-broker  who  undertakes  to  raise  money  for  a  cor- 
poration by  selling  its  securities  to  the  public  direct 
and  through  other  brokers.  The  "fiscal  agent"  differs 
from  the  "underwriter,"  as  ordinarily  the  fiscal  agent 
assumes  no  obligation  beyond  advertising  expense 
and  incidental  expenses  accompanying  the  general 
exploitation  and  sale  of  the  securities.  Sometimes  he 
is  allowed  the  call  on  a  block  of  stock  at  a  fixed  price 
and  sometimes  his  compensation  is  a  certain  com- 
mission or  percentage  of  total  sales. 

What  is  the  GOLD  STANDARD  ACT  ? 

An  act  of  March  14,  1900,  which  fixes  the  standard 
gold  dollar  as  one  containing  25.8  grains  of  gold, 
nine-tenths  fine.  All  forms  of  money  issued  or 
coined  by  the  United  States  must  be  maintained  on  a 
parity  of  value  with  the  gold  standard. 

What  is  a  SUBSIDIARY  COMPANY? 

It  is  a  company,  the  control  of  which  is  vested  in 
another  corporation,  through  the  ownership  of  a 
majority  of  its  stock.  The  company  owning  the  con- 
trol of  the  stock  of  the  "subsidiary"  company  is 
known  as  a  Holding  Company. 


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Moody's  Magazine  occupies  a  unique  place  as  a 
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pages  are  discussed,  monthly,  the  fundamental 
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Moody's  Magazine  contains  every  month: 

An  editorial  review  of  current  events  in  which 
a  careful,  unbiased  and  interesting  analysis  of  cur- 
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